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On Tuesday, UBS analyst Alberto Valerio upgraded shares of WEG S.A. (WEGE3:BZ) (OTC: WEGZY) from Neutral to Buy, setting a price target of R$66.00. The upgrade was based on the belief that the stock presents a buying opportunity following a derating since the DeepSeek event and subsequent fourth-quarter 2024 results, which Valerio considered strong. The company, with a market capitalization of $35.2 billion, maintains a "GREAT" financial health score according to InvestingPro analysis, which highlights 12 additional key insights about the company’s performance.
WEG S.A.’s stock had experienced a derating from approximately 31 times 12-month forward price-to-earnings (PE) at the end of 2024 to 25 times currently. This valuation is an 8% premium compared to global industrial peers, which stand at 24 times PE. This premium is significantly lower than WEG’s historical average premium of roughly 62% or about 36% since 2022. Current analysis from InvestingPro shows the stock trading at a P/E ratio of 33.1x, with detailed valuation metrics and peer comparisons available in the Pro Research Report.
Despite the recent derating, UBS maintains a positive outlook on WEG’s long-term fundamentals. The firm projects a double-digit revenue growth for WEG, with an estimated compound annual growth rate (CAGR) of 12.4% from 2025 to 2040. The company is also poised to benefit from secular trends, particularly in energy transition and related themes. This optimism is supported by WEG’s impressive revenue growth of 16.9% in the last twelve months and a strong five-year revenue CAGR of 23%.
Valerio highlighted WEG’s sustained EBITDA margin, which stood at 22.4% in 2024 and is projected by UBS to be 22.5% in 2025. These margins are well above the long-term average of approximately 18.4%. The strong margin is attributed to the positive transmission and distribution (T&D) cycle expected to continue in the coming years, bolstered by longer backlogs and favorable pricing, product mix, and the advancement of efficiency and verticalization in foreign operations.
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