LONDON -- More analysts are urging investors to buy shares in Vestas Wind Systems A/S than at any time since October 2010 after the stock soared more than 400 percent over the past 12 months.
More than 45 percent of analysts covering Europe’s biggest wind turbine maker recommend purchasing Vestas stock, versus a September 2012 low of 9.4 percent, according to data compiled by Bloomberg. Ten analysts advise clients to buy, five have hold ratings and seven say sell, according to the data. In November, only eight analysts recommended buying Vestas.
The shares are poised for a fivefold jump in value this year after the company reduced, signed a partnership deal with Mitsubishi Heavy Industries Ltd. and replaced its chief executive officer. Orders surged by more than a third, reaching a record pace in December, according to Nordea AB. Before 2013, Vestas’s shareholders had struggled through three years of losses after cuts to government subsides for green energy hurt the company.
“The improved cash flow and massive order intake, especially from the U.S., would be the highlights of 2013,” Jacob Pedersen, an analyst at Sydbank A/S with a buy recommendation, said by phone. “Everything is set for 2014 to be a decent and profitable year.”
Shares in Vestas rose 1.3 percent to 161.90 kroner as of 9:02 a.m. in Copenhagen, bringing this year’s gain to 408 percent.
As of Dec. 27, Vestas had taken 5,214 megawatts of orders in 2013, after a flurry of large U.S. deals in the past four months. That’s up from 3,738 megawatts of orders last year.
“Fundamentally the share is undervalued,” said Pedersen. “They only need to grow with the market — they don’t need to take meaningful market share. They’ve already got a decent share of the orders that have been handed out. The effect of the cost-cutting moving into the profit and loss account will be even greater in 2014.”
Vestas in August unexpectedly replaced CEO Ditlev Engel with Anders Runevad from Ericsson AB. Since then, Runevad has completed an asset disposal program, selling six factories and closing another, and sealed a long-sought partnership on offshore wind with Mitsubishi Heavy.
Vestas said Nov. 6 it will probably achieve its year-end goals of cutting fixed costs by 400 million euros ($554 million) and trimming its workforce. The company employed 17,237 workers at the end of the third quarter, a figure Vestas estimates will drop to 16,200 once workers at factories now sold are taken off the payroll.
Shareholders have grown accustomed to volatility. Vestas’s stock lost more than 40 percent in each of the years from 2010 to 2012. In four of the years since the company’s 1998 listing, its shares jumped more the 100 percent.
“With the many new orders announced in December, we see a good chance that analysts will need to return to their spread sheets and raise their estimates” for Vestas, Nordea Private Banking, a unit of Stockholm-based Nordea Bank AB, said in a Dec. 27 note. “Vestas has had a fantastic year, which also means the stock has advanced at an explosive pace, but we think there’s still room for more price gains after the many new orders.”
Nordea has a buy recommendation and a share price estimate of 178 kroner, implying an 11 percent gain from Dec. 27’s close.
Still, Vestas has yet to become profitable after losing money for nine consecutive quarters, and a U.S. tax credit to the industry is set to expire by the end of tomorrow. The company’s “extremely strong” stock performance is not justified, according to a November note from analysts at Macquarie Group Ltd., including Shai Hill in London.
Some investors are cashing in now instead of waiting for further gains. Schouw & Co. said today it sold its entire holding of 4 million Vestas shares for proceeds of 612 million kroner. The divestment took place from Nov. 29 to Dec. 27 and represents 1.96 percent of Vestas’s share capital, Schouw said in a statement to the stock exchange.
“The holding of Vestas shares was a non-strategic stake,” Schouw said.
“We think Vestas will struggle to exceed a 5 percent margin into the medium term,” the analysts wrote. “The geographical breadth of its operations and its drive into emerging markets is a competitive advantage, but it will also force Vestas to put down fixed cost at a local level.”
Copyright 2013 Bloomberg
Lead image: Graph and landscape via Shutterstock