On Monday, Citi analysts updated their stance on Atlas Copco AB (ATCOA:SS) (OTC:ATLKY), increasing the price target from SEK 177.00 to SEK 187.00 while maintaining a Buy rating on the company’s shares. The adjustment follows recent tariff relief, which has eased macroeconomic concerns since the sector analysis on April 12, 2023.
Analysts at Citi revised their model for Atlas Copco, noting that the tariff relief should alleviate some of the macroeconomic worries that have been hovering over the sector. They compared the company’s increased R&D and functional costs to a similar investment push by other companies a decade ago, suggesting that these expenses are temporary but likely to fuel future growth. Atlas Copco’s history of strong R&D payback supports this expectation.
The report also highlighted that cost savings in the semiconductor sector are expected to increase in the second half of the year. While the mix headwind from the Gas and Process division is anticipated to persist through 2025, it is projected to lessen as 2026 approaches. Despite incremental foreign exchange headwinds, the analysts believe that improved profitability is on the horizon for the latter half of the year, which should support Street margins.
Citi’s analysis pointed out that following Atlas Copco’s sharp underperformance compared to the SXNP index, the company’s price-to-earnings ratio relative to the index (125) has returned to levels seen just after the Covid-19 outbreak. This is before the company experienced a significant uptick in growth across various sectors such as semiconductors, LNG, carbon capture, battery manufacturing, electric vehicles, and solar energy, all of which have slowed down since their initial surge.
In closing, the analysts forecast high single-digit growth for Atlas Copco by the end of the year and suggest that a reversal of the recent sharp underperformance is now more likely.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.