Morgan Stanley cuts Fortum stock rating to Equalweight

Published 28/02/2025, 09:10
Morgan Stanley cuts Fortum stock rating to Equalweight

On Friday, Morgan Stanley (NYSE:MS) adjusted its view on Fortum OYJ (HE:FORTUM:FH) (OTC: FOJCY), downgrading the stock from Overweight to Equalweight, while setting a new price target at €15.60. The decision comes after a year-to-date rally of 19.7%, with the stock currently trading near its 52-week high of $3.32. According to InvestingPro data, the company maintains a strong financial health score of 3.08 (rated as GREAT), suggesting solid fundamentals despite the recent price appreciation.

Morgan Stanley’s analysis suggests that Fortum’s current share price incorporates a long-term power price assumption of €44 per megawatt-hour (MWh), which is slightly above the average forward curve anticipated for the years 2026 to 2030, pegged at €40 per MWh. This aligns with InvestingPro’s Fair Value analysis, which indicates the stock is slightly overvalued at current levels. Trading at a P/E ratio of 11.54 with a beta of 0.78, the stock offers relatively stable market exposure, though analysts believe the potential for further price appreciation is now more limited.

The research firm also compared Fortum’s dividend yield (DY) to its peers, noting that Fortum’s 2026 DY of 5.3% is attractive when set against Verbund (VIE:VERB)’s 2.4%. Currently offering a 3.48% dividend yield, Fortum has maintained dividend payments for 27 consecutive years - a remarkable achievement highlighted by InvestingPro’s analysis. While this yield is only marginally higher than the sector average of 4.9%, the company’s consistent dividend history and high shareholder yield demonstrate strong commitment to shareholder returns.

Growth prospects for Fortum were also discussed, with Morgan Stanley pointing out that with limited capacity growth expected, any significant upside for the stock would likely need to come from higher Nordic power prices. For this to happen, an increase in power demand within the Nordic market would be necessary, a factor that remains uncertain. The company’s current market capitalization stands at $13.89 billion, with a gross profit margin of 43.19%, indicating solid operational efficiency despite growth challenges.

In summary, Morgan Stanley’s repositioning on Fortum stock reflects a recalibration of expectations after recent share price gains. The firm’s analysts have provided a detailed rationale behind their rating downgrade, focusing on valuation, dividend yield comparisons, and potential growth drivers tied to market conditions in the Nordic region.

In other recent news, Citi has updated its outlook on Fortum OYJ, raising the stock price target to EUR14.30 from the previous EUR14.20 while maintaining a Neutral rating. Citi’s analysts have based their decision on the expectation of declining results for Fortum over the next three years, balanced by the possibility of rising long-term power prices. The analysis hinges on current forward power prices, which suggest a potential decline, although an increase in power demand could lead to higher prices in the long run. Despite the slight increase in the price target, Citi does not anticipate 2025 to be a significant turning point for local power prices, thus sustaining their Neutral stance. The firm’s analysts note potential changes in the power market, but they do not expect substantial shifts in pricing dynamics in the near future. Fortum’s financial performance remains closely tied to the fluctuations in power prices, influenced by market demand, regulatory changes, and broader economic conditions. Investors will likely monitor these developments, considering Citi’s updated price target as they evaluate Fortum’s position in the evolving energy market landscape.

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

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