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On Wednesday, Jefferies analysts downgraded EDP Renovaveis SA (ELI:EDPR:LI) (OTC: EDRVF) stock rating from Buy to Hold and reduced the price target to €8.70 from the previous €11.00. The decision comes amid concerns regarding the company’s balance sheet, which shows total debt of $10.94 billion and a concerning current ratio of 0.69, and the potential risks associated with its asset rotation process. According to InvestingPro analysis, the company operates with a significant debt burden and may face challenges with interest payments.
The analysts at Jefferies highlighted that EDP Renovaveis is facing a stretched balance sheet, and the success of its approximately €3 billion asset rotation is deemed crucial for the company’s deleveraging efforts. The firm noted that most of the asset sales, which are necessary for reducing debt, are expected to occur in the United States. The stock has fallen nearly 50% over the past six months and currently trades near its 52-week low of $8.63.Get access to 12 additional InvestingPro Tips and comprehensive financial metrics to make better-informed investment decisions.
EDP Renovaveis’ operations in the U.S. are subject to political and regulatory uncertainties, particularly concerning renewable assets. This situation is believed to introduce execution risk for the company’s planned asset sales. The analysts expressed reduced confidence in the effectiveness of EDP’s backstop for the current year, citing constraints on EDP’s balance. InvestingPro’s Financial Health Score rates the company as WEAK, though it maintains impressive gross profit margins of 77.62%.
Jefferies’ revised price target of €8.70 reflects a significant reduction from the previous target of €11.00, indicating a more cautious outlook on the renewable energy company’s financial health and future performance. The downgrade to a Hold rating suggests that Jefferies no longer recommends purchasing the stock at its current valuation.
The report from Jefferies serves as an update to investors on the firm’s stance regarding EDP Renovaveis’ stock. It emphasizes the importance of the company’s asset rotation strategy and the potential impact of external factors on its success. The new rating and price target are now part of the investment community’s broader analysis and consideration for EDP Renovaveis’ shares.
In other recent news, Citi analyst Jenny Ping has revised the price target for EDP Renovaveis SA, lowering it from €17.70 to €11.30. Despite this reduction, Citi maintains a Buy rating on the stock. The adjustment reflects a shift in market sentiment, with a transition from growth pricing to a discount on existing assets. Ping highlights challenges faced by EDP Renovaveis, including the U.S. Inflation Reduction Act and interest rate headwinds, but argues that the negative valuation of the company’s cash-generative assets is unwarranted. She suggests that management strategies, such as a share buyback program or asset sales, could improve market sentiment. Ping notes that these strategies carry risks but could potentially reverse the current market sentiment. Investors are advised to watch for updates during the company’s full-year 2024 results announcement. Citi’s revised valuation stands at €11.3 per share, indicating potential upside despite the removal of unsecured growth from the valuation.
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