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Investing.com -- Bank of America (BofA) downgraded Orsted (CSE:ORSTED) A/S stock to Underperform and slashed the price target to DKK265 from DKK350.
The move comes following the U.S. administration’s decision last week to halt construction on Equinor’s Empire Wind offshore project, indicating a “significant escalation of policy risk” for the industry.
“We believe that Orsted now faces an extended period of high uncertainty, with a substantially increased probability of adverse outcomes, including the worst case scenario of a permanent halt to its Revolution and Sunrise Wind projects,” analysts led by Peter Bisztyga said in a note.
The company’s shares tumbled 7.5% in Copenhagen as of 07:42 GMT.
The bank estimates that Orsted could face impairments of around DKK15 billion and net cancellation fees exceeding DKK20 billion if these projects are permanently halted, which would equate to approximately 30% of the company’s market capitalization.
Additional risks include the possibility of import tariffs leading to a DKK2.6 billion impairment by the first quarter of 2025, as well as the potential retroactive reduction or removal of Investment Tax Credits (ITCs) for offshore wind, which could further decrease the value of Orsted’s projects by about DKK15 billion.
“We expect Orsted’s ability to raise tax equity and to farm down the projects to be adversely impacted by the policy backdrop, increasing balance sheet risk,” analysts added.
While BofA does not consider a permanent project stoppage as the most likely outcome, it acknowledges that even a temporary halt, coupled with the other risks, could significantly impact Orsted’s financials.
The analysts project that such a scenario could reduce Orsted’s mid-term earnings per share (EPS) by 8-13%, lower free funds from operations/net debt (FFO/ND) to as little as 22%, and push down the fair value of the stock by DKK75 per share. BofA’s new price target takes into account a 50% probability of these adverse outcomes.
Still, the analysts believe that Orsted could potentially offset balance sheet impacts by cancelling its Hornsea 4 UK offshore wind project, though this action would likely affect the company’s long-term earnings potential.