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On Tuesday, Morgan Stanley (NYSE:MS) adjusted its stance on Prysmian SpA (BIT:PRY:IM) (OTC: PRYMY), downgrading the stock from Overweight to Equal-weight and reducing the price target to €66.00 from €70.00. The downgrade follows an impressive year-to-date performance of Prysmian shares, which have surged by 58%, outpacing its peers in the Capital Goods Electricals sector.
The firm's analyst cited several reasons for the downgrade, including the stock's significant re-rating compared to its peers and concerns about Prysmian's organic EBIT growth. Historical patterns show that Prysmian's organic EBIT has grown at a slower pace than its Electricals peers, a trend that is expected to continue into 2026-27.
This forecast is attributed to the anticipation that key divisions like Power Grids and Industrial and Construction, which are currently at peak margins, may not sustain this performance.
Furthermore, while optimistic about EBITDA margin expansion in the High Voltage segment for the years 2027-28, the analyst expressed concerns regarding potential delays in Prysmian's capacity investments in the United States. Such delays could hinder positive revenue surprises in the future.
Additionally, the current consensus appears to assume a best-case scenario across various divisions of Prysmian, including stable high margins for Encore and a recovery in Digital Solutions to 15% EBITDA by 2028, despite the company indicating that a 12% EBITDA margin would be more normalized.
Lastly, expectations for the Renewables Transmission (high voltage) segment to return to its previous peak margin of 18% were also highlighted as a potential optimistic assumption in the consensus. The analyst's comments reflect a cautious outlook on Prysmian's ability to maintain its recent strong performance and margin levels across its business divisions in the coming years.
In other recent news, Prysmian SpA reported an adjusted EBITDA of EUR869 million for its first-half financial results for 2024, a figure closely aligned with the consensus estimate of EUR864 million. The company's net profit for the first half of the year exceeded Berenberg's expectations by approximately 4%, attributed to a lower effective income tax rate.
However, Prysmian's updated guidance for the full year 2024 did not meet the analyst's initial expectations. The new forecast for adjusted EBITDA stands at EUR1,900 million to EUR1,950 million, which is consistent with the consensus estimate of EUR1,915 million but falls short of the higher investor expectations prior to the release of the H1 2024 results.
In other recent developments, Prysmian's financial performance and subsequent guidance update have been key factors influencing Berenberg's price target revision. Berenberg made a slight adjustment to the price target for Prysmian, increasing it to EUR76.00 from EUR75.00, while reaffirming a Buy rating on the stock.
Meanwhile, Citi increased its price target for Prysmian shares to €69.00, citing improved earnings per share (EPS) forecast and cash flow expectations for the years 2024-2026. Additionally, JPMorgan resumed coverage on Prysmian shares with an Overweight rating, significantly raising its price target to EUR71.00, influenced by the company's strategic moves, including the acquisition of Encore Wire (NASDAQ:WIRE).
Lastly, Barclays (LON:BARC) increased its share price target from EUR58.00 to EUR63.00, highlighting Prysmian's robust margin and risk profile, particularly in high-voltage capacities.
InvestingPro Insights
Recent data from InvestingPro adds context to Morgan Stanley's downgrade of Prysmian SpA. Despite the analyst's concerns, Prysmian has demonstrated strong financial performance. The company's revenue for the last twelve months as of Q3 2024 stands at $17.75 billion, with a quarterly revenue growth of 17.8% in Q3 2024. This growth aligns with Prysmian's status as a prominent player in the Electrical Equipment industry, as noted in one of the InvestingPro Tips.
The company's profitability is also noteworthy, with a gross profit margin of 38.42% and an operating income margin of 6.94% over the last twelve months. These figures support another InvestingPro Tip indicating that analysts predict the company will be profitable this year.
However, the P/E ratio of 31.42 suggests that Prysmian is trading at a high earnings multiple, which may justify Morgan Stanley's caution. This valuation metric aligns with the InvestingPro Tip highlighting the stock's high return over the last year, with a remarkable 81.83% price total return over the past 12 months.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights, with 10 tips available for Prysmian SpA.
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