On Thursday, UBS upgraded SSE Plc. (LON:SSE:LN) (OTC: SSEZY) stock, a prominent UK energy company with a market capitalization of $21.36 billion, from Neutral to Buy. The revised rating comes with a new price target of GBP 19.70, increased from GBP 19.35.
Currently trading at $19.61, near its 52-week low of $18.76, InvestingPro analysis suggests the stock is currently undervalued. Freshney's decision follows a challenging year for SSE, which saw its shares decline approximately 13% in 2024 due to higher interest rates and delays in the Dogger Bank wind farm project.
SSE's performance lagged behind its peers, underperforming Iberdrola (OTC:IBDRY) by 28% and Enel (BIT:ENEI) by 18%. Despite these setbacks, the analyst believes that SSE's fundamentals are strengthening. InvestingPro data reveals the company has maintained dividend payments for 34 consecutive years, demonstrating long-term financial stability.
The company is shifting its focus toward lower-risk transmission capital expenditures and quasi-regulated Contracts for Difference (CfDs), which provide a more predictable revenue stream.
According to Freshney, the improved price target of 1,970 pence (from 1,935 pence) reflects the anticipation of higher capacity payments in the late 2020s. Trading at an attractive P/E ratio of 9.11x and maintaining a "GREAT" financial health score of 3.18 according to InvestingPro, the analyst's positive outlook is based on the view that SSE's transition to a business model with lower risk and the potential for long-term growth is not yet fully appreciated in its current stock price.
SSE's strategic pivot towards more regulated and stable revenue sources is expected to mitigate the risks associated with its merchant energy and long-term project pipeline. This shift is seen as a significant factor in the analyst's upgraded rating and increased price target.
Investors and market watchers will be keeping a close eye on SSE's progress as it continues to navigate the challenges and opportunities in the energy sector. The company's efforts to recalibrate its business towards more secure investments in transmission infrastructure and regulated contracts may provide a more stable foundation for growth in the coming years.
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