On Tuesday, Morgan Stanley adjusted its stance on Belimo Holding AG (BEAN:SW) (OTC: BLHWF), moving the stock from an Overweight to an Equalweight rating, while slightly raising the price target to CHF465.00 from CHF461.00. The revision follows a period where Belimo's shares have seen a notable outperformance against the SXOP index by 10% over the past month. This surge was attributed to diminishing political concerns and the company's defensive positioning in non-residential markets.
The analyst pointed out that Belimo's price-to-earnings (P/E) multiple has re-rated by 7%, contrasting with a 7% decline in the SXOP during the same timeframe. This re-rating is seen as a reflection of the risks which are now considered to be adequately priced into the stock. Consequently, the firm anticipates limited immediate catalysts that could potentially drive an earnings upgrade for Belimo.
The expectations set by Morgan Stanley and Visible Alpha for local currency growth stand at 8.5% and 8% for fiscal years 2025 and 2026, respectively. These figures suggest a positive cyclical recovery but are tempered by ongoing macroeconomic concerns. They also compare to a 9% compound annual growth rate (CAGR) from fiscal years 2003 to 2023.
In terms of profitability, the forecasts for operating profit margins indicate an improvement of 100 basis points (bps) to 150 bps, reaching 18.5% to 19% over the forecast period, up from the levels anticipated for fiscal year 2024. These projections are above the average margin of approximately 17% recorded from fiscal years 2011 to 2023. The analyst believes that these margins already factor in Belimo's quality product lineup, effective cost management, and proven track record.
However, despite these positive attributes, the valuation of Belimo is considered high, trading at 37 times the fiscal year 2025 P/E for an expected 5% earnings per share (EPS) growth from fiscal year 2023 to 2025. This valuation led to the conclusion that the current stock price already reflects the company's strengths, leaving little room for further re-rating in the near term.
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