Investing.com -- GEA Group Aktiengesellschaft's (ETR:G1AG) latest earnings report presents a complex picture, balancing strong operational performance with concerns over long-term profitability.
RBC (TSX:RY) Capital Markets has downgraded the stock to “sector perform” from “outperform,” citing a challenging path toward its ambitious Mission 30 targets. The price target has been revised down to €52 from €54 .
Despite a 60% re-rating over the past year, GEA now trades in line with the industrial sector, reflecting solid business execution and robust cash flow.
However, RBC analysts have flagged key concerns that could hinder further revaluation.
"The share re-rated by c.60% in the past year and today trades fully in line with our European cap goods coverage. We do not imply that management is over-promising, but rather we see the path towards the Mission 30 targets as rocky," the analysts said.
The food processing market remains in a state of stagnation, with volume recovery obstructed by high product prices.
Additionally, GEA’s internal restructuring efforts, particularly under Mission 26 and Mission 30, are expected to result in higher one-off costs than current consensus estimates suggest.
"Also, we argue that consensus' assumption of restructuring costs remaining 2/3 below GEA's 10-year average costs (-40bps vs -130bps) are too optimistic, especially given the upcoming projects that GEA aims to address from 2025 onwards (ERP, streamlining organisation)," RBC added.
Fourth-quarter results were mixed. While order intake exceeded expectations and provided a positive highlight, higher restructuring charges and an elevated tax rate led to an earnings miss.
Revenue guidance for fiscal year 2025—forecasted at +1-4% organic growth—was also at the lower end of expectations, raising doubts about the feasibility of long-term margin expansion.
"We have bigger doubts on the margin targets and stay c.130bps below the 17-19% EBITDA margin target by 2030," the analysts said.
RBC has adjusted its financial outlook, reducing FY2025 earnings estimates by 2-7%. Net profit projections have been lowered by 14% to €416 million, trailing consensus by 7%.
"As a result, we lower our FY25 net profit assumption by 14% to €416m, trailing consensus by 7%," RBC said.
The revision factors in higher restructuring charges, estimated at €40 million, and an increased tax assumption of 29% compared to the previous 23.3%.
The brokerage also remains skeptical about GEA’s ability to reach its Mission 30 EBITDA margin target of 17-19%, maintaining a forecast that sits 130 basis points lower.
RBC believes the stock is fully valued, reflecting current performance and future expectations.
"We see no incremental upside and downgrade to Sector Perform with a new PT of €52," the brokerage said.
The downgrade reflects the view that restructuring costs, IT investments, and product design modifications—though necessary for long-term efficiencies—will weigh on near-term profitability.
The absence of additional upside in the stock’s valuation, coupled with execution risks in achieving Mission 30 targets, led to the downgrade.
This content was originally published on Investing.com
