S&P 500 eases slightly from fresh record high after stronger economic growth
On Monday, UBS analyst Supriya Subramanian adjusted the rating for Siemens Energy AG (ETR:ENR1n) (ENR:GR) (OTC: SMEGF), moving it from Neutral to Sell. The price target was also revised to EUR 38.00, up from the previous EUR 23.00. Subramanian's assessment is based on the significant rise in Siemens (ETR:SIEGn) Energy's shares, which surged by more than 320% in 2024.
This increase was attributed to the robust performance of its Gas Services (GS) and Grid Technologies (GT) divisions, along with the progress made in the turnaround of Siemens Gamesa.
Despite the past success, UBS expressed concerns that the current share price might fully reflect these positive developments while underestimating the risks associated with the margin turnaround in the Siemens Gamesa business. As a result, the firm has downgraded the stock and set a new price target that suggests a more cautious outlook.
The UBS analyst pointed to a reverse Sum of the Parts (SoTP) valuation, estimating that the market is valuing Siemens Gamesa at over EUR 13 billion in enterprise value, which may be overly optimistic given the potential challenges ahead. Additionally, a reverse Discounted Cash Flow (DCF) analysis implied that the stock price is factoring in a terminal growth rate higher than 5%, which exceeds UBS's estimate of 3% and the forecasted sales Compound Annual Growth Rate (CAGR) for 2024-2028 of almost 15%, compared to UBS's expectation of 7.8% and consensus estimates of 8.8%.
Subramanian highlighted that Siemens Energy shares are trading at a 12-month forward EV/EBIT multiple of 28 times, representing a premium of more than 100% compared to the sector. The shares also reflect a full valuation of approximately 16.5 times EV/EBIT when discounting the expected EBIT for FY28. This valuation suggests that the market is anticipating perfect execution and that Siemens Energy will achieve the higher end of its fiscal year 2028 targets. UBS's downgrade underscores a more conservative stance on the stock's future performance amidst these aggressive market expectations.
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