On Tuesday, Morgan Stanley (NYSE:MS) initiated coverage on Svenska Cellulosa Aktiebolaget SCA (SCAB:SS) (OTC: SVCBF) with an Equalweight rating and set a price target of SEK145.00. The firm's analysis highlights SCA's position as a defensive stock due to its self-sufficiency in forest resources, energy, and logistics, alongside well-invested industrial assets. The shift from declining graphic paper sectors to other areas is also seen as a positive move for the company.
The analyst pointed out that despite SCA's strengths, there are factors that could limit earnings growth in the near term. Specifically, the company is facing challenges such as wood cost inflation and muted demand, which are expected to dampen earnings momentum. These issues are seen as significant enough to warrant a cautious stance on the stock for now.
The valuation of SCA's stock was also a key point in the coverage, with the stock trading at a modest discount of approximately 5-10% to its historical average in terms of enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and book value per share (BVPS). This discount suggests that the stock is not significantly undervalued at the current levels, according to Morgan Stanley's assessment.
Morgan Stanley's initiation of coverage with an Equalweight rating indicates a neutral outlook on the stock, suggesting that the stock's current price adequately reflects its prospects and risks. The firm is adopting a wait-and-see approach, indicating that they are looking for a more attractive entry point before potentially changing their stance on SCA.
In summary, Morgan Stanley has begun tracking Svenska Cellulosa Aktiebolaget SCA with a neutral rating, acknowledging the company's solid industrial foundation and strategic shift, but also taking into account the current economic headwinds and valuation metrics.
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