On Tuesday, Morgan Stanley (NYSE:MS) issued a downgrade for Ariston Holding NV (ARIS:IM), adjusting the stock's rating from Equalweight to Underweight. The firm also reduced the price target to €3.50 from the previous €4.00.
The downgrade was based on the assessment that the company's main products—water heaters, which account for around 50% of group sales, and gas boilers, making up about 30%—are facing divergent growth prospects. Water heaters are experiencing low single-digit percentage growth, while gas boiler demand is on a structural decline, particularly in Europe and the United States.
The analyst from Morgan Stanley pointed out that while mergers and acquisitions are aiding Ariston Holding's shift towards renewable technologies, such as heat pumps, the progress is not swift enough to compensate for the declines in other areas. Moreover, the analyst expressed skepticism regarding the company's ability to meet future earnings expectations for FY25/26, which appear overly optimistic given the assumption of favorable construction market trends without any expected deterioration in the competitive landscape.
The report further highlighted several factors contributing to the negative outlook for Ariston Holding's shares. These include near-term political uncertainties, such as subsidies that could impact the business, and a lack of detailed information about cost-cutting measures needed to achieve mid-term EBIT margin targets. Additionally, the company's history of not surpassing fiscal year guidance does not instill confidence in investors.
Morgan Stanley also noted the company's dual-class share structure as a potential barrier to attracting new long-term investors. The structure is often viewed unfavorably by investors who may seek more influence over corporate decisions. This aspect, combined with the lack of positive near-term catalysts, paints a cautious picture for Ariston Holding's investment outlook according to Morgan Stanley's analysis.
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