Jefferies lowers Subsea 7 stock target as backlog concerns weigh on outlook By Investing.com

On Thursday, Subsea 7 (OTC:) SA (SUBC:NO) (OTC: SUBCY) had its stock outlook revised as Jefferies adjusted its target price to NOK230.00, down from NOK240.00 previously, while keeping shopping. rating on the company's stock. The correction follows a strong second quarter, which has set high expectations for the next quarter.

Despite the generally soft sentiments projected for the third quarter of 2024, in line with markets expecting a slight decrease in EBITDA margin quarter-over-quarter, Jefferies expects a slight increase in Group margin, driven by the continued strong performance of the company in the Renewables sector. .

Jefferies' stance differs from market expectations primarily on the backlog, which is estimated at about $11.5 million after a relatively quiet third quarter of new activity. This figure falls short of consensus. The analyst also noted that free cash flow (FCF) may be influenced by vessel investment, specifically mentioning the acquisition of the Seven Merlin vessel.

A statement from Jefferies highlights the company's second-quarter achievements as a key factor in market sentiment, despite a softer outlook for the third quarter. The firm remains optimistic about Subsea 7's performance going forward, particularly in the area of ​​renewable energy projects, which are expected to contribute positively to the Group's overall profitability.

The forecast for Subsea 7's backlog and free cash flow reflects the company's strategic decisions, including investments in expanding its fleet. The acquisition of Seven Merlin is seen as a significant investment that could affect the company's finances in the short term.

In summary, while Jefferies lowered its target price for Subsea 7, the investment firm maintains a positive outlook on the stock, based on the company's strong performance in the renewables sector and its ability to improve profit margins. The revised target price reflects more conservative expectations for the company's backlog and free cash flow due to recent investments.

In other recent news, offshore energy services provider Subsea 7 reported a significant increase in its financial performance for the second quarter of 2024. The company saw a record high in backlogs, reaching $4 billion in new awards. The company's adjusted EBITDA increased 80% year-over-year to $292 million, and revenue rose to $63 million, from $14 million in the same period last year. The company predicts that full-year revenue will be between $6.5 billion and $6.8 billion, with adjusted EBITDA between $1 billion and $1.05 billion.

However, Bernstein SocGen Group downgraded Subsea 7, changing its rating from Outperform to Market Perform, primarily based on valuation fundamentals. The company also revised its price target to NOK214.00, down slightly from the previous NOK218.00. Analyst estimates of return on capital employed range from 1.3% in 2023 to 9.2% in 2027, which is still short of meeting the estimated cost of capital of 10%.

Despite the downgrade, the report acknowledges that Subsea 7 has free cash flow potential as the company enters what is described as a harvest period. Accumulated free cash flow is expected to reach approximately $2.1 billion during the years 2025 to 2027, with potential yields hitting 9-10%, 11-12%, and 16-18%, respectively. These are the latest developments for Subsea 7.

InvestingPro Insights

To complement Jefferies' analysis, InvestingPro data provides additional context on Subsea 7's financial performance and market conditions. The company's market capitalization stands at $4.93 billion, with a P/E ratio of 35.31 based on the trailing twelve months from Q2 2024. This valuation metric is in line with one of InvestingPro Tips, noting that Subsea 7 is “Trading at a high rate. ” more salaries.”

Despite the high P/E ratio, another InvestingPro Tip suggests that the stock “Trades at a low P/E ratio relative to near-term earnings growth,” with a PEG ratio of 0.17. This shows a potential neglect when considering the company's growth prospects. Revenue growth of 16.21% over the past twelve months supports this view, indicating strong top-line expansion.

The company's financial health appears to be solid, InvestingPro Tips indicates that Subsea 7 “Operates with a moderate level of debt” and “Has been Profitable for the past twelve months.” These factors may affect the company's ability to invest in fleet expansion, as mentioned in the article.

Investors looking for a more comprehensive analysis can access more InvestingPro Tips, with 6 more tips available on Subsea 7 on the InvestingPro platform.

This article was created with the support of AI and reviewed by an editor. For more information see our T&C.