RBC downgrades Schindler to “sector perform” as valuation peaks

Investing.com -- RBC Capital Markets has downgraded Schindler Holding AG (SIX:SCHN)G to “sector perform,” citing a steep run-up in the stock that has left little room for further upside, in a note dated Thursday. 

The Swiss elevator maker has gained nearly 80% since October 2023, outperforming the broader European industrials sector by approximately 40 percentage points in euro terms.

While analysts at RBC acknowledged Schindler’s operational improvements and more shareholder-friendly capital strategy in recent years, they said the stock’s sharp re-rating means further gains are now likely to depend entirely on earnings momentum. 

Schindler currently trades at roughly 20 times estimated 2025 enterprise value to EBIT, about a 20% premium to its 10-year average and higher than peers Kone and Otis.

“While Schindler in recent years has typically traded at a discount to rivals Kone and Otis, today it commands a small premium,” the analysts said. 

“The business should sustain good momentum, but we think this is captured in the share price,” they added.

The brokerage raised its price target to CHF310 from CHF290, citing better-than-expected first-quarter results and operational strength. 

However, it sees limited scope for further valuation expansion, positioning earnings as the main driver going forward.

Despite posting its highest operating margin since 2017 at 12%, the company’s guidance suggests only modest room for margin gains in the coming quarters. 

RBC also flagged risks from foreign exchange headwinds and noted that consensus may be underestimating restructuring costs, which are currently modeled at CHF50 million, below the upper end of management’s guidance.

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The downgrade follows two years of notable progress under new leadership. Schindler has raised its dividend, launched a buyback, and is making better use of its net cash position. The company’s dividend yield stands at 2.1%, based on a payout of CHF6.20 per share.

Still, with shares closing at CHF300.80 as of April 30, just below RBC’s updated target, the valuation is among the richest in the sector. Schindler is now the third most expensive stock in RBC’s industrials coverage.

RBC’s valuation model assumes a 7.5% weighted average cost of capital and a terminal growth rate of 2.5%. 

The target implies a 2025 EV/EBITA multiple of around 20 times. In a bullish scenario, the analysts see potential for the stock to reach CHF370, while a downside case would put it closer to CHF220.

Earnings per share are expected to rise from CHF9.61 in 2024 to CHF11.24 by 2027. Market capitalization stands at approximately CHF33.5 billion.

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