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Investing.com - UBS downgraded Epiroc AB (EPIA:SS) (OTC:EPOKY) from Buy to Neutral and lowered its price target to SEK200.00 from SEK240.00, citing multiple concerns about the company’s growth prospects.
The downgrade reflects UBS’s view that Epiroc’s Equipment & Service margins are unlikely to recover to 2021/2022 levels. The firm forecasts flat margins for 2025, 2026, and 2027, as operating leverage and cost savings will be offset by continued mix headwinds in the Service business.
UBS conducted detailed analysis on Epiroc’s Digital business, which comprises 9% of the Service segment, concluding it has lower margins and less software content than commonly understood. The firm estimates the "connect" products business, representing 60% of the Digital segment, operates at 0% margins with little evidence of improvement without acquisitions.
The investment bank also flagged near-term risks to Equipment revenue growth due to insufficient backlog coverage, leading to a forecast 3% below consensus for equipment revenues in 2025.
UBS noted that Epiroc’s high level of acquisitions between 2021 and 2024 has diluted margins, undermining its premium valuation relative to peers. The firm projects faster earnings growth for competitors Metso and Weir in 2026 and 2027, with Weir’s margins expected to surpass Epiroc’s in coming years.
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