Andritz shares drop as Barclays downgrades on weak end markets, earnings risks

Investing.com -- Shares of Andritz AG (ETR:ANDR ) fell over 4% on Wednesday after Barclays (LON:BARC ) downgraded the stock to "underweight" citing challenges in sectors such as pulp and paper, automotive, and steel, which contribute to Andritz's revenue streams.

Barclays projects a bleak outlook for Andritz's earnings, estimating a 5-13% shortfall in EBITA for fiscal years 2025 and 2026 compared to market expectations. 

The note underscores that consensus forecasts assume record-high margins, which Barclays analysts believe are unrealistic given the prevailing headwinds. 

These include volume declines, cost inflation, and subdued capital expenditures across core industries.

Pulp, one of Andritz's most critical markets, faces declining capital expenditures, with utilization rates in the sector remaining below historical averages. 

Barclays anticipates this trend will persist until at least the latter half of 2025. Similarly, capital expenditures in the automotive and steel sectors are stagnating, while elevated interest rates weigh on demand for large hydroelectric projects, another vital area for Andritz.

The analysts also pointed to Andritz's inventory management as a concern. Barclays estimates that the company holds about  €100 million in excess inventory, potentially reflecting a mismatch between production levels and current market demand. 

Additionally, the benefits derived from warranty provisioning, which have bolstered margins in recent years, are expected to wane, further challenging profitability.

Despite Andritz's relatively low valuation multiples, Barclays argues that weak end markets and likely downward revisions to earnings estimates limit the potential for a stock re-rating. 

The analysts reduced their price target for Andritz by 20%, to €40, representing a downside of over 24% from its December 2 closing price of €52.80.

Source: Investing.com