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On Wednesday, JPMorgan analysts upgraded Manila Electric Co (MER:PM) (OTC: MAEOY) from a Neutral to an Overweight rating, significantly raising the price target to PHP620.00 from PHP430.00. The upgrade comes following a period where Manila Electric’s shares outperformed, showing a 16% rally against a 17% decline in the Philippine Stock Exchange index (PSEi) over the past six months. The stock has demonstrated remarkable strength with a 42% return over the past year and currently trades near its 52-week high of $21.78. InvestingPro analysis indicates the stock is currently fairly valued based on its proprietary Fair Value model.
The analysts at JPMorgan expressed confidence that Manila Electric will maintain its strong performance. They anticipate this will be bolstered by continued positive revisions to the 2025 and 2026 consensus Earnings Per Share (EPS) and Dividend Per Share (DPS), propelled by profitable power generation agreements and the resolution of previous provisions. A robust balance sheet is expected to support a 60% dividend payout, which is higher than the company’s policy of 50%. According to InvestingPro data, the company has maintained dividend payments for 18 consecutive years, with an impressive dividend growth of 25% in the last twelve months. The company’s financial health score is rated as "GOOD," supported by strong profitability metrics.
Manila Electric’s earnings growth is expected to be driven by clear distribution tariff resets and successful operations in its Chromite and SPNEC generation assets, which could lead to a 13% compound annual growth rate (CAGR) in generation profits over three years. The analysts highlighted the company’s capacity to maintain dividend declarations, supported by significant debt headroom and strong free cash flow from distribution operations and investments. The company operates with a moderate debt-to-equity ratio of 0.66 and maintains sufficient cash flows to cover interest payments, as revealed by InvestingPro’s detailed financial analysis.
JPMorgan projects a favorable dividend yield potential for Manila Electric, estimating a 5.1% yield for 2025 and 5.6% for 2026. Additionally, the firm foresees an attractive price-to-earnings ratio (P/E) of 10.8x for 2026, which is considerably lower than the long-term average of 14.2x. The positive outlook is further supported by expectations of increased dividend and earnings per share, with analysts predicting a 9-11% rise in DPS and a 6-8% increase in EPS for 2025 and 2026. Currently, the stock trades at a P/E ratio of 13.3x with a current dividend yield of 3.1%, and InvestingPro identifies 10 additional key investment factors for subscribers.
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