Strong valuation upside remains for this Italian stock: Jefferies

Investing.com -- Jefferies reiterated its positive stance on this Italian stock, highlighting strong valuation upside and raising its price target by 6% to €3.70 per share, citing higher dividends and improved free cash flow projections.

Post-4Q24 results of Saipem (BIT:SPMI), analysts increased free cash flow estimates by double digits and projected dividends more than double their previous forecast. However, higher depreciation and amortization (DD&A) related to lease costs weighed on EPS.

"YE24 backlog is a new record but the real trend of importance is quarterly positive free cash flow," Jefferies said, emphasizing that its revised price target of €3.70 requires Saipem’s EV/EBITDA multiple to improve to just over 3x and for 2026 free cash flow yield to align with the sector average of 12%.

Jefferies also highlighted Saipem’s proposed merger and key project risks, which dominated investor queries following the company’s London analyst meeting.Discussions focused on "loyalty shares" and the double voting mechanism, which the firm described as “a very important but little understood part of the deal structure and rationale.”

The firm reiterated its differentiated view on Saipem’s offshore exposure, noting that the continuation of material awards in Offshore Engineering & Construction (E&C) underscores the diverse geographic opportunities in the Middle East and deepwater markets.

Jefferies had upgraded Saipem to Buy in October 2022 following its largest-ever contract worth $4.5 billion from Qatargas. A similar scale contract of nearly $4 billion was secured in September 2024.

Jefferies believes applying value-based metrics to Saipem’s price target offers some protection against execution risks tied to legacy pre-COVID awards.

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