On Friday, Barclays adjusted its stance on Sandvik AB (SAND:SS) (OTC: SDVKY), upgrading the stock from Underweight to Overweight and increasing the price target to SEK220.00, up from the previous SEK195.00. The revision reflects a more favorable outlook on the company's potential, despite subdued growth expectations in its core markets.
The analyst at Barclays noted that while Sandvik's core end markets might not exhibit significant growth, the current stock price does not fully reflect this, indicating potential value at approximately a 6% free cash flow yield and a 12% valuation discount compared to the sum of the parts valuation at the higher end of its historical range. The short-cycle business of Sandvik is seen as having limited downside risk at this point, with market expectations already set low.
Furthermore, the mining sector, where Sandvik has a significant presence, is considered to be well-positioned both cyclically and strategically. The analyst pointed out that inventory reductions in the aftermarket are complete and recent large orders in original equipment support a positive outlook.
Sandvik's strategic focus on core underground loading and hauling, along with its organic, bottom-up approach to automation and electrification, is viewed as favorable.
Barclays emphasized that compared to other European mining equipment companies, Sandvik has the least risk of not meeting consensus estimates. This assessment comes after Sandvik's shares underperformed the SXNP index by approximately 11% over the past three months. The new price target of SEK220 represents a 13% increase, which is largely attributed to higher earnings and free cash flow estimates.
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