On Friday, JPMorgan (NYSE:JPM) adjusted its outlook on Acerinox SA (ACX:SM) (OTC: OTC:ANIOY), reducing the price target to €7.60 from the previous €8.00, while maintaining an Underweight rating on the stock. The firm anticipates that the persistent softness in the global stainless steel market will likely lead to downward revisions in near-term earnings for the company.
The revision reflects a cautious stance towards Acerinox's financial performance, with JPMorgan's estimates for the company's pro forma EBITDA for the years 2024 and 2025 being 10% and 17% lower, respectively, than the consensus. The firm projects a third-quarter EBITDA of €107 million, which is 13% below the consensus.
JPMorgan also highlighted that the upcoming third-quarter earnings report, scheduled for November 4, could serve as a trigger for further earnings downgrades. The firm's analysis suggests that Acerinox is trading at an elevated valuation, with pro-forma EV/EBITDA multiples of 8.5x for 2024 and 6.5x for 2025 based on JPMorgan's base case, compared to the management's target multiples of 1.5x and 1.2x.
Moreover, the firm's forecast includes a net debt to EBITDA ratio (ND/EBITDA) of 2.1x for 2024 and 1.6x for 2025, which stands above the targets set by Acerinox's management. This indicates JPMorgan's view that the company's leverage may be higher than what the company aims for in the coming years.
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