Investing.com -- Shares of Veolia Environnement (EPA: VIE ) traded lower after Jefferies downgraded the French utility to “underperform” from "hold" rating, citing earnings risk, strategy concerns and a lack of near-term catalysts, in a note dated Wednesday.
The brokerage also cut its price target by 20% to €25, implying a 19% downside from the previous close.
Jefferies analysts pointed to macroeconomic exposure and uncertain growth as key reasons for the downgrade.
“We believe the volatile macro environment makes the balance of risks on Veolia’s earnings skewed to the downside,” the brokerage stated, flagging that about 20% of the group’s revenues are directly exposed to the economic cycle.
Regression analysis from Jefferies showed a clear correlation between Veolia’s revenues, particularly in its waste business, and industrial production.
The downgrade reflects a dim view on Veolia’s ability to hit medium-term targets. Jefferies estimates for EBITDA and net income are 3% and 11% below consensus across 2025 to 2027, respectively.
The analysts cast doubt on the company’s “booster” businesses, which are expected to drive top-line growth under the GreenUp strategy.
“In a world with lower economic growth, higher trade tensions and poorer macro, we believe that Veolia will find it harder to execute on its boosters strategy,” analysts said, describing the boosters as a “show me” story.
Jefferies also questioned the company’s current strategic direction, suggesting that management’s wide focus across water, waste and energy has added complexity and confused investors.
“Veolia’s growth profile [is] complex to understand, which we see as a key reason for Veolia’s valuation conundrum,” the note said, pointing to at least seven planned investor presentations through 2024 and 2025 as an example of the fragmented narrative.
The analysts were blunt in their assessment: “A change in strategy is needed to unlock value.” They argued for a clearer articulation of the value in Veolia’s business units, and floated ideas such as spin-offs or disposals to simplify the equity story.
“These are not new ideas, and our understanding is that management remain confident in the current strategy,” the note added.
Jefferies’ revised valuation assumes a trough-cycle P/E of 11x, compared to a three-year average of 13x. The total shareholder return implied by the new target is negative 12%.
“We see a lack of convincing catalysts,” the analysts wrote, adding that upcoming events, including first-quarter results and a scheduled deep-dive on waste operations, are unlikely to materially shift sentiment.
While Veolia trades at a discount to U.S. peers and even to its own sum-of-the-parts valuation, Jefferies sees little to support a rerating without a shift in approach or an improvement in the macro backdrop.
Until then, they expect the stock to lag defensives offering clearer growth visibility and yield. “We prefer RWE/IBE for growth, Engie/Enel for dividend,” the analysts concluded.