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On Tuesday, UBS analyst Alberto Valerio upgraded WEG S.A. (WEGE3:BZ) (OTC: WEGZY) stock rating from Neutral to Buy, setting a new price target of R$66.00. The upgrade follows a period of underperformance for the company’s shares, which Valerio sees as an opportunity for investors. According to InvestingPro data, WEG currently commands a market capitalization of $35.17 billion and has demonstrated strong financial health, earning a "GREAT" overall score of 3.08 out of 5.
WEG’s stock has experienced a derating, with its forward price-to-earnings (PE) ratio decreasing from approximately 31x at the end of 2024 to 25x currently. This valuation now represents an 8% premium over its global industrial peers, which stand at 24x PE. This is a significant reduction from WEG’s historical premium, which was around 62% or 36% since 2022. InvestingPro analysis shows the company currently trades at a P/E of 33.13x, with additional metrics suggesting it’s trading at a premium relative to near-term earnings growth potential. Subscribers to InvestingPro can access 10+ additional valuation insights and proprietary Fair Value calculations.
Despite the recent underperformance, UBS maintains a positive outlook on WEG’s long-term prospects. The firm anticipates a double-digit compound annual growth rate (CAGR) of 12.4% in revenue from 2025 to 2040. WEG’s strategic positioning in the energy transition sector and related themes is expected to drive this growth. This optimism is supported by the company’s recent performance, with InvestingPro data showing impressive revenue growth of 16.87% in the last twelve months, reaching $6.14 billion. The company has also maintained dividend payments for 33 consecutive years, demonstrating consistent financial stability.
Valerio highlighted WEG’s sustained EBITDA margin, which outperforms historical averages. In 2024, WEG achieved a 22.4% EBITDA margin, and UBS estimates it will reach 22.5% in 2025, compared to the long-term average of around 18.4%. The positive outlook is supported by a robust transmission and distribution (T&D) cycle with extended backlogs, favorable pricing, product mix, and advancements in efficiency and verticalization of foreign operations.
The upgrade by UBS reflects a confidence in WEG’s ability to capitalize on its strengths and continue its growth trajectory in the face of current market conditions. The new price target of R$66.00 offers a perspective on the potential value UBS sees in WEG’s shares moving forward.
In other recent news, UBS has upgraded WEG S.A.’s stock rating from Neutral to Buy, setting a price target of R$66. This decision by UBS analyst Alberto Valerio follows a recent derating of the stock, which now trades at 25 times the 12-month forward price-to-earnings ratio, an 8% premium compared to global industrial peers. Despite this derating, WEG S.A. is expected to see a double-digit revenue growth, with a projected compound annual growth rate of 12.4% from 2025 to 2040. UBS also highlights WEG’s strong EBITDA margin, which was 22.4% in 2024 and is projected to be 22.5% in 2025. These margins are notably above the long-term average of 18.4%, supported by favorable conditions in the transmission and distribution cycle. The company is anticipated to benefit from trends in energy transition, which are expected to drive growth. UBS maintains a positive outlook on WEG’s long-term fundamentals, citing strong backlogs and favorable pricing as key factors.
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