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On Friday, RBC Capital Markets maintained its Underperform rating on Atlas Copco AB (ATCOA:SS) (OTC: ATLKY), with a steady price target of SEK130.00. The firm’s analysis indicates that the company is experiencing significant foreign exchange challenges, which are expected to impact revenue and margins for the current year. According to InvestingPro data, the company currently trades at a P/E ratio of 23.36x and has a market capitalization of $71.32 billion. InvestingPro analysis suggests the stock is currently overvalued relative to its Fair Value.
According to RBC Capital, Atlas Copco is confronting the most substantial currency headwinds in fourteen years, which could lead to a 5.8% decline in revenue and a 50 basis points contraction in margins for the year. While market consensus has adjusted for these headwinds, it still anticipates a recovery in margins by 2026 to the company’s historical range of 21-22%. The company’s current gross profit margin stands at 42.72%, with revenue growth of just 0.54% over the last twelve months.
However, RBC Capital challenges the notion of Atlas Copco’s margin stability, pointing out that when adjusted for external factors, such as the 30% devaluation of the Swedish krona since 2011, the company’s margin has actually decreased by 510 basis points since that year. Furthermore, the firm notes that Atlas Copco’s earnings before interest and taxes (EBIT) growth has been lackluster, at just 7.3% compound annual growth rate since the 2018 post-EPIA spin-off, trailing the sector average.
The analysis by RBC Capital suggests that without a significant market recovery, Atlas Copco’s earnings could stagnate through 2027. The firm has reiterated its Underperform rating and price target of SEK130, signaling a cautious outlook on the stock’s performance. Despite these challenges, InvestingPro data reveals the company has maintained dividend payments for 46 consecutive years and maintains strong financial health metrics. For deeper insights into Atlas Copco’s valuation and growth prospects, including 12 additional ProTips and comprehensive financial analysis, check out the full Pro Research Report available on InvestingPro.
In other recent news, Atlas Copco received an upgrade in its stock rating from CFRA analyst Jeff Wong, who moved the rating from Hold to Buy. Despite this positive shift, Wong reduced the price target for the company from SEK200.00 to SEK167.00, citing current uncertainties and anticipated lower profitability due to softer volumes. The analyst also revised the earnings per share forecasts, lowering them to SEK6.06 for 2025 and SEK6.57 for 2026, reflecting moderated expectations for the company’s future performance. Wong remains optimistic about Atlas Copco’s potential, highlighting the company’s strong order book and the growth of its high-margin service business. He also pointed out the company’s strategic acquisitions and its history of strong returns on capital as attractive factors for investors. The expectation of a recovery in industrial demand is anticipated to drive robust revenue growth and improve margins. These developments indicate that while Atlas Copco faces short-term challenges, its long-term outlook remains promising.
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