On Thursday, Morgan Stanley adjusted its price target on Wartsila Oyj Abp (WRT1V:FH) (OTC: WRTBY), increasing it slightly from EUR12.20 to EUR12.30, while keeping the stock's rating at Underweight. The adjustment follows the firm's assessment of Wartsila's new divisional structure and improved margin assumptions.
The firm has updated its earnings per share (EPS) forecasts for Wartsila for the years 2024 through 2026, citing a 3.1% increase for 2024, a 1% increase for 2025, and a 0.5% increase for 2026. These changes reflect the implementation of Wartsila's new divisional structure in the firm's forecasts. Additionally, Morgan Stanley has made a modest increase of 20 to 30 basis points to their group margin assumptions, attributing this to improving price costs in the company's backlog.
Despite the revised forecasts, Morgan Stanley's 2025 group EBITA (earnings before interest, taxes, and amortization) prediction remains 4% below the current visible alpha consensus. For the first quarter of 2024, the firm anticipates a relatively uneventful performance from Wartsila. Their order forecast for the quarter stands at €1.86 billion, which is 3% ahead of the current consensus. However, their EBITA forecast of €126 million, which corresponds to an 8% margin, aligns with the consensus.
Morgan Stanley continues to rate Wartsila as Underweight due to potential risks. The firm anticipates that a decrease in ship orders could lead to a moderation in Wartsila Marine orders in the second half of 2024 and into 2025.
Additionally, the firm notes that Wartsila's valuation appears relatively high, with the company trading at 13.3 times its enterprise value to EBITA ratio, which is now close to the sector average. Furthermore, Wartsila's free cash flow (FCF) yield, projected at 3% for 2024-2025, is viewed as less attractive compared to the sector.
InvestingPro Insights
InvestingPro data and tips provide a broader perspective on Wartsila's financial health and stock performance. With a market capitalization of $9.43 billion, the company is trading at a high earnings multiple with a P/E ratio of 29.37, based on the last twelve months as of Q4 2023. This aligns with Morgan Stanley's assessment of Wartsila's valuation being relatively high. The company's revenue growth has been modest at 2.91% over the last twelve months, while the quarterly revenue growth has seen a decline of 7.26% in Q4 2023.
From the perspective of InvestingPro Tips, Wartsila has demonstrated commitment to its shareholders by raising its dividend for 3 consecutive years and maintaining dividend payments for 33 consecutive years. The company has also been recognized for its high return over the last year, with a 1-year price total return of 80.34%. Moreover, two analysts have revised their earnings upwards for the upcoming period, which may indicate potential optimism in the company's future performance.
For investors looking for a more detailed analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/WRTBY. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights that could aid in making more informed investment decisions. Note that there are 11 additional InvestingPro Tips listed for Wartsila on InvestingPro.
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