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On Wednesday, Morgan Stanley (NYSE:MS) adjusted its stance on Heidelberg (ETR:HDDG) Materials AG (HEI:GR) (OTC: HDELY), downgrading the company’s stock rating from Overweight to Equalweight. The new price target set by the firm is EUR138.00. According to Morgan Stanley, Heidelberg Materials has successfully implemented cost-cutting measures and has shown fiscal discipline in capital expenditures (CAPEX) since the COVID-19 pandemic, which has led to a stronger, less leveraged business with improved free cash flow (FCF) and returns.
The analysts at Morgan Stanley noted that Heidelberg Materials’ approach to prioritizing value over volume has been effective in defending its free cash flow generation amid disciplined capital expenditure. However, they pointed out that the demand for Heidelberg Materials’ products is being adversely affected by the current environment of higher interest rates. Additionally, the firm observed that the company’s shares have experienced a re-rating that preceded earnings growth.
Despite the downgrade, Morgan Stanley acknowledged that Heidelberg Materials’ stock continues to be reasonably priced, citing a free cash flow yield of 10% and a price-to-earnings (P/E) ratio of approximately 9 times, both projected for the fiscal year 2025. Nonetheless, the analysts emphasized that they foresee limited immediate catalysts that could drive a further re-rating of the stock in the near term.
The assessment by Morgan Stanley reflects a cautious outlook on the potential for Heidelberg Materials’ share price to climb further in the short term, considering the impact of macroeconomic factors and the stock’s current valuation metrics.
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