JPM ups Siemens Energy to 'overweight' on FCF potential, shares rise

Siemens Energy's ENR1n.DE shares rise 2.5% after J.P. Morgan ups its rating for the German company to "overweight" from "neutral," citing strong and sustainable free cash flow (FCF) generation until 2040

The broker expects general electrification and AI trends to spread beyond the U.S., driving further growth for new power generation assets and renewed investment in grid infrastructure

JPM says service contracts support long-term cash flows, and it estimates Siemens Energy's Gas Services division revenues alone to reach 12 billion euros ($14 billion) by 2028 with margins of up to 30%, representing around 20% of the company's revenue

"We ... take comfort in the fact that the company is crystallizing the current supply/demand imbalance into highly profitable, decades-long service contracts that will run into the 2040’s," JPM adds

The broker notes other upsides, such as Siemens Energy's 1.2% trademark fee which it will no longer pay to Siemens SIEGn.DE from 2030, and a swap in shares with Siemens as well as an obligation to reach 51% of ownership of Siemens Energy by 2028

Siemens Energy stock is up 132% year-to-date

($1 = 0.8564 euros)