Investing.com -- Shares of A.P. Moller-Maersk (CSE:MAERSKa) dropped more than 2% today after Morgan Stanley (NYSE:MS) downgraded its rating for the Danish shipping giant to "underweight," citing a persistent imbalance between container supply and demand.
The brokerage also slashed its price target for Maersk to DKK 12,200 from DKK 14,500, flagging deteriorating market fundamentals and increased financial pressures due to capital-intensive fleet expansion.
Morgan Stanley pointed to a wave of new vessels entering the market, many of which were ordered during the pandemic-induced supply chain disruptions that had temporarily inflated shipping rates.
This influx is now colliding with slowing global trade growth, contributing to downward pressure on freight rates.
The analysts underscored the high operational leverage in Maersk's business model, which amplifies the financial impact of such rate fluctuations on the company's earnings and free cash flow.
Further compounding the challenges for Maersk is its ambitious decarbonization strategy, including fleet renewal aimed at achieving net-zero emissions by 2040—a decade ahead of the International Maritime Organization's target.
While commendable for its sustainability goals, this initiative has led to a sharp increase in capital expenditure, keeping free cash flow negative.
The ongoing investments are particularly burdensome in a market environment characterized by overcapacity and weakened pricing power.
Morgan Stanley's report described Maersk's current valuation as a "value trap," citing risks to earnings and insufficient free cash generation to offset heightened spending. While the company boasts a net cash position, analysts stressed that this offers limited protection given the structural headwinds facing the industry.
This comes amid broader challenges in the shipping and logistics sector, with other industry players also grappling with reduced demand and excess capacity.
Maersk’s operational gearing and positioning, however, place it at heightened risk of financial underperformance in this environment, according to Morgan Stanley analysts.