Barclays sets Schneider Electric shares to overweight on growth potential

On Wednesday, Barclays initiated coverage on shares Schneider Electric (EPA:SCHN) SE (EPA:SU) (OTC:SBGSY) with an Overweight rating, accompanied by a price target of €262.00. The firm highlighted the company's potential for significant growth and profitability relative to its peers in the electrical and European Capital Goods sectors.

The assessment follows a period of fluctuation in Schneider Electric's stock value, which had seen a devaluation, now trading at around a 35% premium compared to the SXNP 2-year forward EV/EBIT. Barclays anticipates that Schneider will achieve more than double the growth of the average electricals peer and maintain adjusted EBITA margins that are over 400 basis points higher than the sector average.

Barclays' analysis suggests that Schneider Electric's performance is on par with high-quality industrials, given its margin levels and top-quartile free cash flow (FCF) margin. The firm argues that these financial metrics warrant Schneider Electric's stock to trade at least in line with the average valuation of quality industrials, which would be about a 55% premium to the sector.

The price target of €262.00 is based on the expectation that Schneider Electric should trade at a comparable premium to the sector on a 2025 estimated EV/EBITA multiple. Barclays' positive outlook reflects confidence in the company's ability to sustain its competitive edge in profitability and growth within its industry.

In other recent news, Schneider Electric has been the focus of several major financial firms following its first-half results. Deutsche Bank increased its price target on Schneider Electric's shares to €215, maintaining a Hold rating. Despite mixed financials, the company's first-half results revealed a 5% adjusted EBITA beat over consensus.

The company's full-year margin outlook suggests a conservative estimate, anticipating only a 50-100 basis points sequential decline in the second half of the year. Based on these developments, Deutsche Bank revised its margin assumption for Schneider Electric to 18.5%, leading to a 1% increase in the firm's earnings per share estimates for the years 2024 to 2026.

Moreover, Jefferies upgraded Schneider Electric's stock from Hold to Buy and increased the price target to EUR 260. Following in-depth research, Jefferies anticipates Schneider Electric's adjusted earnings per share for fiscal year 2025 to be 6% above consensus due to strong volume and pricing in Schneider's Energy Management business.

UBS also maintains a Buy rating for Schneider Electric, viewing it as one of the most promising growth-driven stories in the sector. These recent developments highlight the positive outlook of Schneider Electric's strategic positioning and its potential to enhance shareholder value through consistent performance.

InvestingPro Insights

Barclays' recent initiation of coverage on Schneider Electric SE with an Overweight rating and a price target of €262.00 underscores the company's robust potential in the electrical and European Capital Goods sectors. To further complement this analysis, InvestingPro data provides additional insights into the company's financial health and market performance.

As of the last twelve months leading into Q2 2024, Schneider Electric boasts a market capitalization of 59.38 billion USD, reflecting its significant presence in the market. The company's P/E ratio stands at 32.4, which is adjusted to 30.08, indicating a valuation that is higher than the industry average. This high earnings multiple aligns with one of the InvestingPro Tips, suggesting that Schneider Electric is trading at a premium. The company's Price / Book multiple is also on the higher side at 4.57, reinforcing the premium valuation narrative.

On the growth front, Schneider Electric has shown a revenue growth of 1.99% over the last twelve months, with a slightly higher quarterly growth rate of 3.06%. These figures indicate a steady upward trajectory in the company's revenue stream.

InvestingPro Tips further highlight Schneider Electric's consistency in rewarding shareholders, having raised its dividend for 10 consecutive years and maintained dividend payments for 29 consecutive years. This track record is a testament to the company's financial stability and commitment to shareholder returns.

For investors looking for more in-depth analysis, there are additional InvestingPro Tips available, including insights into the company's debt levels, profitability predictions for the current year, and performance over the last decade. Visit https://www.investing.com/pro/SBGSY to explore these valuable tips and gain a comprehensive understanding of Schneider Electric's investment potential.

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