Investing.com -- BofA Securities has downgraded its rating on Ørsted A/S (CSE:ORSTED) to "neutral" from "buy,” citing concerns over lower earnings growth, a more conservative capital allocation strategy, and the company’s ongoing efforts to stabilize its financial position.
Shares of the Danish energy company were down 2.4% at 06:08 ET (11:08 GMT).
The downgrade follows Ørsted’s revised business plan, which prioritizes balance sheet repair over expansion, potentially affecting the company’s long-term growth trajectory.
As per analysts at BofA, Ørsted is shifting its focus towards executing projects already under construction while significantly scaling back new investments.
This strategic recalibration is driven by the need to maintain a solid investment-grade credit rating, particularly after recent financial strains linked to its U.S. offshore wind projects.
BofA notes that while an equity raise appears to be off the table for now, the decision comes at a cost—lower earnings potential, reduced growth expectations, and a scaled-down dividend outlook.
Ørsted’s revised capital allocation plan signals a substantial reduction in onshore investment, which is expected to be cut by up to 90%.
The company is now concentrating its limited capital on offshore wind projects, resulting in a higher proportion of unproductive capital in the near term and a slower EBITDA growth rate.
Additionally, Ørsted is assuming that it will not be able to sell its stake in the Sunrise Wind project until 2027, necessitating further asset disposals to meet its financial targets.
To bridge this gap, Ørsted will need to offload an additional DKK 10 billion in operational assets, which could further constrain its earnings in the short term.
Despite these headwinds, BofA analysts acknowledge that Ørsted still has a solid portfolio of operational and under-construction projects, which underpin a reasonable valuation.
They estimate a 15% potential upside based on the company’s pipeline execution and cost optimization measures, which are projected to drive a 7.4% compound annual growth rate in EBITDA from 2025 to 2030.
However, the downgrade reflects the analysts’ view that the risk-reward profile is now more balanced, given uncertainties surrounding U.S. policy developments, limited financial flexibility, and execution risks related to the company’s disposal strategy.
The revised outlook also impacts Ørsted’s dividend policy. The company has maintained its plan to reinstate dividends in 2026, but at a significantly lower level than previously anticipated.
Analysts now expect a 40% reduction in the projected dividend compared to earlier estimates, reflecting the company’s need to preserve cash and maintain financial stability.
The downgrade also comes in light of Ørsted’s recent stock performance, which has rebounded approximately 15% from recent lows.
This recovery, combined with a reassessment of valuation metrics, has led BofA to lower its price objective for Ørsted from DKK 410 to DKK 350 per share.
Analysts said that while the company’s 2025 estimated enterprise value-to-EBITDA ratio of 8.9x appears reasonable, persistent uncertainties—including regulatory risks in the U.S. offshore wind sector, potential cost overruns, and limited balance sheet headroom—could pose challenges moving forward.