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On Monday, Jefferies analysts revised their stance on Hochtief (ETR:HOTG) AG (HOT:GR) (OTC: HOCFF), downgrading the stock from Buy to Hold but slightly increasing the price target from EUR156.00 to EUR158.00. The firm acknowledged Hochtief’s impressive year-to-date rally of approximately 27% and a longer-term 12-month gain of around 53%. These gains have been attributed to heightened construction activity in the United States and the positive market sentiment surrounding increased infrastructure spending in Europe.
Despite the ongoing demand in the U.S. for manufacturing, data centers, and healthcare facilities, Jefferies analysts suggest that the current optimism regarding Europe, in relation to Hochtief’s sales exposure in the region, which is roughly 5%, may be exaggerated. The firm also pointed to potential risks associated with the company’s premium valuation, which at 17.4 times forward earnings per share (EPS), is 25% higher than the average valuation over the past ten years. This valuation is also nearly equivalent to that of specialist U.S. engineering firms that are experiencing faster growth.
The analysts at Jefferies also highlighted the currency risk posed by a stronger Euro, which could act as a headwind for Hochtief, given that approximately 50% of the company’s earnings are exposed to the U.S. dollar. Despite raising the price target for Hochtief to EUR158.00, reflecting higher construction multiples in Europe due to a stronger overall outlook, Jefferies sees other infrastructure companies with more significant European exposure, such as BBY, FGR, and DG, as more attractively priced investment opportunities.
In conclusion, while recognizing Hochtief’s strong performance and the positive environment for construction in Europe, Jefferies analysts have tempered their expectations for the stock’s future total shareholder return, considering it fairly valued at the current levels with a flat total shareholder return anticipated over a 12-month price target.
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