Sprouts Farmers Market closes $600 million revolving credit facility
Investing.com -- Bernstein has initiated coverage on Veolia (EPA:VIE) in a note dated Tuesday, assigning an “outperform” rating with a price target of €38.
The analysts flag Veolia’s position as a key player in the water, waste, and energy sectors, benefiting from long-term structural trends such as rising environmental standards, population growth, water scarcity, and the decarbonization of power.
Veolia operates in essential industries that are projected to experience sustained demand, making it well-positioned for future expansion.
The company is currently trading at a 20% discount to its historical forward P/E, with an expected fiscal year 2027 price-to-earnings ratio of 11.1x and a projected dividend yield of 6%.
The valuation reflects the company’s ability to generate steady earnings growth, supported by its diversified revenue streams and operational efficiencies.
Bernstein’s price target is based on a discounted cash flow model for fiscal years 2025 through 2030, factoring in a terminal free cash flow growth of 2%, which aligns with long-term economic and inflation trends.
The weighted average cost of capital applied is 6.4%, accounting for Veolia’s geographic and business footprint.
Veolia’s financial performance underscores its strong fundamentals. The company reported fiscal year 2024 revenue of about €45 billion and EBITDA of €6.8 billion, with nearly half of EBITDA generated from its water segment, around 30% from waste, and 20% from energy.
The adjusted earnings per share for 2024 stood at €2.13, with estimates rising to €2.29 in 2025 and €2.51 in 2026.
The EBITDA is projected to grow from €6.8 billion in 2024 to €7.6 billion by 2026, maintaining a steady compounded annual growth rate of over 5%.
Bernstein points to Veolia’s exposure to high-growth activities such as water technologies, hazardous waste management, and energy efficiency services, which are expected to drive future earnings.
The company also benefits from an inherent hedge against inflation, as approximately 70% of its revenue is indexed to inflationary pressures.
Additionally, Veolia maintains a geographically diversified portfolio, with key revenue contributions from the U.S., the Middle East, and Australia, reducing dependency on European market conditions.
Veolia’s financial stability is further reinforced by its strong free cash flow generation, which is expected to exceed €1 billion annually from 2026 onward.
This financial flexibility supports dividend payments, deleveraging efforts, and potential expansion. The company’s net debt-to-EBITDA ratio is forecasted to decline to 2.5x by the end of 2027, remaining well below the company’s internal cap of 3x.
Furthermore, return on capital employed (ROCE) is anticipated to improve to 9.5% in fiscal year 2027, surpassing the post-tax WACC of 6.0%, signaling value creation for stakeholders.
Despite some limitations in earnings granularity, Veolia has made strides in improving transparency and investor communication.
Bernstein acknowledges the company’s increased efforts to provide more detailed disclosures on financial performance and operational strategy.
With a market capitalization of €23.1 billion and a dividend yield expected to rise from 4.5% in 2024 to 6.0% in 2027, Veolia presents an attractive investment case.
The current share price of €31.19 suggests a potential upside of 22% based on Bernstein’s price target.