Morgan Stanley set Hubbell's stock to an Equalweight rating by Investing.com
Morgan Stanley has begun coverage on Hubbell (NYSE: HUBB ), a company with significant exposure to the emerging utilities and energy markets.
The firm gave the stock an Equalweight rating and set a $407.00 price objective. The investment reflects a positive outlook on the company's revenue growth potential, driven by its involvement in key growth areas such as electrical installations, utilities, and data centers.
An analyst from Morgan Stanley expressed confidence in Hubbell's ability to overcome the current market challenges, suggesting that the upside from asset cuts is clear. Positions the company advantageously as markets begin to differentiate between short-cycle businesses.
Looking ahead, the analyst expects moderate single-digit organic growth for Hubbell, which is a step up from the low-digit growth seen historically.
Despite the optimistic outlook for top-line growth for Hubbell, the analyst pointed out that consensus ratings have already counted on a near-term recovery and expect continued growth, which may limit the potential for positive rating revisions.
Additionally, there are concerns about the company's resource constraints, which may face downside risks after significant expansion over the past two years, driven by pricing and cost benefits.
Hubbell's stock valuation of about 22 times 2025/2026 consolidated earnings per share represents a mid-single-digit premium over the S&P 500 average. This valuation is in line with the long-term average, but the analyst suggests that the recent shift to mid-single-digit organic growth can be opposed to stock reviews.
In other recent news, Hubbell Incorporated reported strong performance for the second quarter of 2024, with an 8% year-over-year increase in adjusted operating profit and a 40 basis point expansion in adjusted operating margin.
The company also announced organic sales growth of 7% in its Electrical Solutions segment, mainly due to strong performance in data centers and renewables. Despite facing challenges in the telecommunications market, Hubbell is projecting double-digit adjusted operating profit growth for the full year.
As a result of these developments, the company raised its full-year guidance, expecting sales growth of 7% to 8% and organic growth of 3%.
Oppenheimer maintained its Perform rating on Hubbell shares, emphasizing the company's strong position in the Transmission & Distribution sector and unique value proposition. The firm also noted the company's operational strategies, including a target to reduce HES square footage by approximately 15% by 2027.
Hubbell is focused on reducing the backlog and expects low single-digit growth in the utilities segment and mid-digit growth in the HES segment. The company also raised its full-year adjusted earnings per share perspective, expecting improvements in organic growth and adjusted operating margins.
InvestingPro Insights
Morgan Stanley's recent investment in Hubbell highlights the company's growth potential in the consumer electronics and electronics markets. To complete this analysis, InvestingPro Insights present a combination of financial strength and market expectations for Hubbell. The company's commitment to shareholder return is evident, as it has increased its dividend for 54 consecutive years, demonstrating a reliable track record for cash-oriented investors. This is especially noteworthy given the current market environment where fixed income growth is very important.
On the valuation front, Hubbell trades at a P/E ratio of 27.09, which is considered high relative to its near-term earnings growth, possibly reflecting the market's optimism about its future prospects. While this high P/E ratio may generally suggest caution, the company's ability to cover interest payments with cash flow provides some reassurance about its financial stability. In addition, with liquid assets exceeding short-term obligations, Hubbell demonstrates a sound cash position that can support its operations and strategic plans.
These financial metrics, along with the fact that analysts predict the company will remain profitable this year, are important considerations for investors. It is important to note that for those looking for more information, there is more InvestingPro Tips available, which provides a broad overview of Hubbell's financial health and market conditions. Interested readers can explore further by visiting the InvestingPro forum for a complete analysis.
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