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Investing.com -- Morgan Stanley (NYSE:MS) has named Siemens (ETR:SIEGn) Energy its new Top Pick in the European capital goods sector, citing strong pricing power in the company’s gas turbine and grid equipment businesses.
The company’s shares jumped 5% in Frankfurt trading.
The Wall Street bank lifted its price target on the stock to €65 from €64 and reiterated its Overweight rating.
“We maintain our view that Siemens Energy remains a consensus upgrade story,” analysts led by Max R. Yates said in a note.
The analysts’ new EBITA estimates for 2028 are 13% ahead of consensus, and their bull-case forecast is 30% ahead.
They pointed to continued improvements in industry pricing dynamics, particularly in gas turbines, as a key driver of growth.
The potential for increased infrastructure spending in Germany adds another layer of support to the company’s outlook. Morgan Stanley noted that a possible €500 billion infrastructure plan could lead to a return of larger gas turbine tenders, further tightening supply and boosting demand for Siemens Energy’s products.
Morgan Stanley has also revised its gas services forecasts, increasing sales expectations and assuming a 15% EBITA margin for 2028, ahead of the company’s guidance range of 12-14%.
“We see an interesting period ahead for the stock in the next 1-2 years where there is effectively a period of margin discovery as Siemens Energy delivers on its existing backlog,” the analysts added.
Siemens Energy’s backlog execution has already translated into meaningful consensus upgrades for both its Gas and Grid divisions, and analysts expect this trend to continue.
Valuation-wise, the stock is currently trading at a 35% discount to the sector on a 2028 EV/EBITA basis, which Morgan Stanley sees as "relatively undemanding."
Looking ahead, the bank also highlighted upcoming catalysts, including Siemens Energy’s first-half 2025 results on May 8, where analysts expect the company to raise both EBITA margin and free cash flow guidance for the year.
The November 20 Capital Markets Day could provide further clarity on long-term targets, with potential upside to the midpoint of 2028 guidance ranges.
At the same time, the analysts pointed to potential risks, including a possible slowdown in order intake which could negatively impact Siemens’ free cash flow (FCF), execution issues of projects in Gas and Grid, and the pace of the turnaround in its wind business.