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On Wednesday, Morgan Stanley adjusted its stance on Altus Power (NYSE:AMPS), downgrading the stock from Overweight to Equalweight and halving the price target to $4.00 from the previous $8.00.
The firm expressed concerns about the company's growth, particularly in the commercial and industrial (C&I) solar sales sector, which appears to be slowing due to an underappreciated amount of inertia in the sales process.
Morgan Stanley anticipates that Altus Power's near-term growth will be driven primarily by asset acquisitions rather than organic asset growth. While these acquisitions are beneficial to earnings, they are unpredictable and may lead to volatility in the company's earnings forecasts. This unpredictability has prompted the firm to foresee potential downside risks to Altus Power's three-year deployment growth and earnings outlook.
Despite Altus Power's valuation appearing cheap on certain metrics, such as being below the discounted cash flow (DCF) value of existing assets or around one times the tangible book value (TBV), Morgan Stanley remains cautious.
The possible downside to the company's three-year outlook and the absence of a clear path to outperformance has influenced the decision to downgrade the stock to Equalweight.
The downgrade reflects a more conservative view of Altus Power's market position and future performance, suggesting that while the company may have the necessary tools to lead in the C&I market, the slower-than-expected growth and potential earnings volatility are significant factors to consider. Morgan Stanley's adjusted expectations for the company's stock performance are reflected in the new price target of $4.00.
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