RBC double-upgrades Schneider Electric on more attractive valuation

Investing.com -- RBC Capital Markets has double-upgraded Schneider Electric (EPA:SCHN) to Outperform from Underperform, a move driven by recent stock underperformance that has led to more attractive valuation levels.

Shares in Schneider Electric underperformed their sector group by roughly 15% and by 12% against the European Electrical peer average, while at the same time, the company's earnings per share (EPS) momentum has turned positive.

“The result is a more attractive investment proposition for a company with a track record of above-peer organic growth that we expect to continue, supported by the electrification/datacenter mix in the portfolio,” RBC analysts led by Mark Fielding said in a note.

Following the recent underperformance, the company's stock is now trading at a discount compared to its peers, with a 2025 estimated enterprise value to earnings before interest, taxes, and amortization (EV/EBITA) multiple of approximately 17x, below the peer average of 18x.

RBC analysts suggest that a multiple in line with peer Eaton Corporation's (NYSE:ETN) 20x could support a valuation of €275 per share. Combining this with a discounted cash flow (DCF) analysis of €265 per share, RBC Capital has raised its price target for Schneider Electric from €225 to €270.

Schneider Electric has consistently outperformed its European electrical peers in organic growth over the past five years, with a rate of 7.4% compared to the peer average of 5.4%. RBC expects this trend to continue, with an 8% annual growth forecast over the next two years.

The company's Energy Management division, which makes up 82% of group sales, has been a significant driver of this growth.

Furthermore, Schneider Electric is poised to benefit from the expanding data center market. While data centers are projected to account for around 20% of the company's 2025 estimated sales, the demand for equipment in this sector is on the rise.

RBC’s tracker of capital expenditures by hyperscale data center operators shows a 30% increase over the last six months.