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On Friday, Citi research firm adjusted its price target for Snam SpA (SRG:IM) (OTC: OTC:SNMRY), a leading energy infrastructure company, to EUR 4.20 from the previous EUR 4.60. The firm has maintained a Neutral stance on the stock. The revision comes in anticipation of Snam's 2025-29 strategy update scheduled for January 22, 2025. According to InvestingPro analysis, the company currently appears overvalued based on its proprietary Fair Value model, with the stock trading near $9.11.
Citi analysts project a forward-looking capital expenditure (capex) plan that incorporates approximately €12 billion of net capex for the period of 2023-2027, an increase from the €11.5 billion previously estimated. The adjustment reflects a shift in investment focus from the earlier emphasis on security of supply to the more uncertain areas of hydrogen, carbon capture and storage (CCS), and biogas.
The firm has expressed concerns over the growth of capex due to the speculative nature of these new investment areas. Additionally, Citi anticipates a potential downward trend in the medium-term guidance, influenced by market-to-market deflator and weighted average cost of capital (WACC) assumptions that are expected to fall short of those projected in the previous plan. InvestingPro data reveals the company operates with a significant debt burden, with a debt-to-equity ratio of 1.77, though it maintains a "GOOD" overall financial health score.
Despite these concerns, Snam has outperformed its peers in the regulated stock sector over the past three months. However, its current trading at a 13% premium to its forecasted FY25 Regulatory Asset Base (RAB) is viewed as excessive when compared to its counterparts.
Citi's neutral position is primarily supported by Snam's attractive dividend yield, which stands at 7%. This factor contributes to the firm's cautious but not entirely negative outlook on the company's stock performance. As the market awaits the detailed strategy update, Citi's revised price target reflects a conservative approach to the evolving investment landscape and potential financial impacts for Snam SpA.
In other recent news, Stifel has initiated coverage on Snam SpA with a Buy rating, indicating a promising outlook for the company's stock value. The firm's assessment of Snam is based on a regulatory asset base (RAB) approach, suggesting a significant upside potential for the stock. Stifel's price target of EUR5.90 per share represents a potential 21% increase from the current share price.
The market is currently pricing Snam with an implied 5% EV/(RAB + equity associates) premium, while Stifel's target implies approximately a 21% premium. The initiation of coverage and the setting of a price target are part of Stifel's broader analysis of the utility sector, which also includes insights on Terna (BIT:TRN), another industry player.
These recent developments suggest that investors and market watchers will be closely monitoring Snam's stock performance in the coming period to see if it aligns with Stifel's projections. The Buy rating and the price target set by Stifel present a positive view of Snam's future market valuation.
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