On Thursday, Morgan Stanley adjusted its stance on GEA Group AG (G1A:GR) (OTC: GEAGY) stock, shifting from an Equalweight to an Overweight rating. Accompanying this upgrade, the firm also raised the price target to €50.00 from the previous €44.00. The revision reflects Morgan Stanley's expectation of the company's financial performance exceeding the market consensus.
The analyst from Morgan Stanley highlighted that their new 2027 EBITDA forecast for GEA Group is 6% above the current consensus. This optimistic outlook is partly due to the anticipation of GEA announcing new financial targets at their upcoming Capital Markets Day on October 2, 2024. The analyst predicts that although GEA's growth target is likely to remain at 4-6%, there could be an increase in the medium-term margin targets.
The current margin targets for GEA are set to surpass 15% in 2026, but Morgan Stanley's base case suggests an uptick to over 17% by 2028. This expectation is underpinned by potential additional cost savings that could be realized. Notably, GEA has already achieved a 15.2% margin in 2024, which bolsters confidence in their ability to reach the 17% margin target by 2027.
The upgrade and new price target suggest that Morgan Stanley sees a more robust financial trajectory for GEA Group than previously estimated. The forthcoming Capital Markets Day may provide further insights into the company's strategic plans and operational improvements that could validate Morgan Stanley's projections.
In other recent news, GEA Group has seen a notable increase in its shares target by RBC Capital Markets, raising it to €46.00 from the previous €45.00, while maintaining an Outperform rating. This change comes as RBC acknowledges management's positive outlook regarding GEA Group's profit margins and anticipated demand growth in the latter half of 2024. The revised estimates include an increase in earnings per share (EPS) by 9% and 13% for 2024 and 2025 respectively.
Simultaneously, Citi has also lifted its price target for GEA Group to €45.30 from €44.00, maintaining a Buy rating. The adjustment is attributed to the company's recovery from a 10% underperformance relative to the SXNP up to mid-June and anticipation of positive news from the company's upcoming October Capital Markets Day.
Despite a weakening macroeconomic environment and election uncertainties, analysts from both RBC Capital Markets and Citi have reaffirmed a positive outlook for GEA Group. They expect the potential for higher targets and a free cash flow margin that could exceed 10% again. However, caution is expressed regarding second-quarter expectations, suggesting it might be premature to anticipate a beat and raise scenario.
These developments indicate an optimistic outlook on GEA Group's financial performance based on management's guidance, market conditions, and recent order intake. The analysts' analysis from both RBC Capital Markets and Citi underscores the company's potential for sporadic market share gains and positive price/mix adjustments.
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