On Tuesday, Morgan Stanley (NYSE:MS) initiated coverage on Holmen AB (HOLMB:SS) shares with an Underweight rating and set a price target of SEK390.00. The firm cited several factors influencing its perspective on the Swedish forestry company, which has historically provided strong shareholder returns and industry-leading Return on Capital Employed (RoCE).
The analyst pointed out that while Holmen has seen success in the past, the outlook for future returns is less optimistic. The company's valuation is considered high when comparing price-to-book (P/B) ratios to Return on Equity (ROE), suggesting that the stock may be overvalued.
Moreover, Morgan Stanley anticipates downward pressure on EBITDA consensus for the fourth quarter of 2024 and the year 2025, specifically due to challenges in the Wood and Renewable Energy segments.
Holmen's significant presence in the graphic paper market, which is experiencing structural decline, is expected to necessitate ongoing investments and a strategic shift in product mix. These factors are forecasted to present obstacles to the company's free cash flow (FCF) and return prospects in the medium term.
The analysis by Morgan Stanley reflects concerns about the future performance of Holmen AB amidst a challenging industry landscape and shifting market dynamics. The Underweight rating suggests that the firm believes Holmen's stock may underperform relative to other companies in the sector.
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