Investing.com -- RBC (TSX:RY) Capital Markets in a note dated Monday has initiated coverage on Veolia Environnement (EPA:VIE) with an "outperform" rating, expressing optimism about Veolia’s growth trajectory and value proposition in the environmental services sector.
RBC analysts flag the progress Veolia has made since its acquisition of Suez, including operational improvements and an increasingly resilient financial structure.
The analysts note that Veolia’s cost efficiency program is expected to exceed targets, which could drive an annual EBITDA growth of about 12% through fiscal year 2027.
The note flags Veolia's diversified service portfolio, which spans water management, waste processing, and energy services, and emphasizes the company's long-term cost efficiency gains.
RBC suggests Veolia's efforts in cost control have already delivered substantial results, contributing to roughly two-thirds of its organic EBITDA growth in recent years.
Veolia’s extensive efficiency-sharing frameworks and operational focus are projected to keep cost savings above the company’s target of €350 million annually, which has been pivotal in securing favorable EBITDA margins and enhancing overall financial stability.
Additionally, RBC analysts point to Veolia’s focus on "booster" divisions—such as hazardous waste management and water technologies—as key growth drivers within the GreenUp initiative, which aims to generate 70% of Veolia's revenue growth from these segments.
These high-margin, tech-driven divisions leverage Veolia’s proprietary technologies and strong market positioning to compete in specialized and fragmented markets.
As per RBC, Veolia’s portfolio of over 4,400 patents underscores its technical advantage, especially in areas like hazardous waste management and water purification.
These booster segments will enable Veolia to increase its revenue share in expanding regulated markets, as per the analysts.
RBC analysts also underscore Veolia’s defensive stance in the face of economic and political headwinds, citing the company's hedged position against fluctuations in power prices and its minimal exposure to French fiscal policies.
Veolia’s current leverage sits at the lower end of its historical range, and RBC anticipates further deleveraging, facilitated by free cash flow and disciplined capital investments.
This financial strength is viewed as an advantage that supports both dividend growth and potential future investments without compromising stability.
With an entry price-to-earnings ratio at 6.3x EV/EBITDA, RBC views Veolia’s shares as attractively valued relative to both historical norms and peer averages, supporting a price target of €37 per share, which implies about 27% upside potential.