Citi raises VNET stock price target to $20, maintains buy rating

On Thursday, Citi analyst Louis Tsang updated the investment outlook for VNET Group Inc (NASDAQ: VNET), increasing the price target to $20.00 from the previous $16.10, while reiterating a Buy rating on the company’s shares. According to InvestingPro data, VNET’s stock has shown remarkable momentum, delivering a 465% return over the past year despite recent volatility. Currently trading at $10.40, InvestingPro’s Fair Value analysis suggests the stock is overvalued. Tsang’s revised target comes amid recent concerns affecting the stock’s performance, including a robust capital expenditure plan that investors fear could diminish equity value and the possibility of needing additional equity financing.

Tsang addressed the potential negative impact of a strong capital expenditure plan, suggesting that the concerns over the company’s financial strategy and the risk of a potential H20 ban and order under-delivery may be overstated. InvestingPro data reveals VNET operates with a debt-to-equity ratio of 2.84 and generates $303.53M in EBITDA. The analyst believes that the issue of $430 million in convertible bonds today effectively removes any overhang. Furthermore, the company’s ambitious plan to deliver 400MW by 2025 justifies the Rmb10-12bn capital expenditure and financing strategy, especially considering the robust 28% EBITDA growth forecasted for fiscal year 2026.

The analyst anticipates an imminent update on the H20 situation and points out that 83% of this year’s order delivery is already pre-committed. This pre-commitment likely ensures the supply of AI accelerators and mitigates the concern of under-delivery, particularly as the AI capital expenditure cycle is just beginning in an industry with tight supply.

Tsang also sees the upcoming Tencent (HK:0700) capital expenditure plan as a potential catalyst for VNET. Adjustments to the EBITDA forecasts for fiscal years 2025-2026 and the introduction of fiscal year 2027 into the model have prompted a roll forward to fiscal year 2026 EV/EBITDA with an unchanged 16x multiple. The price target has been lifted to $20 as the analyst considers fiscal year 2026 a more reasonable benchmark for evaluating the return on capital invested this year. With current revenue growth of 11.41% and a market capitalization of $2.94 billion, the endorsement of a Buy rating reflects confidence in the company’s financial strategy and growth prospects. For deeper insights into VNET’s valuation and growth metrics, access the comprehensive Pro Research Report available on InvestingPro, which covers 1,400+ top stocks with expert analysis and actionable intelligence.

In other recent news, VNET Group Inc. reported its financial results for the fourth quarter of 2024, showcasing a mixed performance. The company posted earnings per share (EPS) of $0.06, which fell short of the forecasted $0.11. However, VNET exceeded revenue expectations by reporting $2.25 billion, surpassing the anticipated $2.06 billion. The company’s revenue growth was driven by increased demand for AI infrastructure and data center services, with a net profit of RMB 248 million, a significant improvement from a net loss in 2023. VNET’s adjusted EBITDA for the quarter increased by 63.8% year-over-year, reaching RMB 721.3 million. Despite these positive revenue results, the company’s stock reacted negatively, declining in pre-market trading. Looking ahead, VNET projects 2025 net revenue to range between RMB 9.1 billion and RMB 9.3 billion, with a capital expenditure plan of RMB 10 to 12 billion. The company also anticipates adjusted EBITDA growth of 15-18% for the coming year.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.