Going into Earnings, is Maersk Stock a Buy, Sell or Hold?

Investors will be watching keenly for an outlook on Red Sea turbulence when the shipping giant reports earnings on Thursday

Johanna Englundh 7 February, 2024 | 8:57AM
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A.P. Moller Maersk (MAERSK B) will release its full-year earnings on February 8.

The shipping market has been troubled by over-capacity following the pandemic demand – which resulted in a steep drop in third-quarter profit at the Danish shipping giant. In its upcoming earnings report investors will be looking for evidence of improvement, but not just in the company's financial prospects, but in the shipping market overall.

"The market will be keen to see if shipping is seeing any signs of improvement," says Michael Field, European market strategist at Morningstar.

"K&N reported just the other week, and this seemed to be the message".

In its third-quarter earnings last year, Maersk maintained its outlook ranges for the full year, but said it was expecting results towards the lower end of the previously communicated ranges of underlying EBITDA of $9.5 to $11.0 billion (£7.6 billion to £8.8 billion) and underlying earnings before interest and tax (EBIT) of $3.5 to $5 billion. The guidance for free cash flow of at least $3 billion remained unchanged.

The shipping giant also reduced its capital expenditure for 2023 and 2024 "given the uncertainty ahead", saying its 2024 share buyback programme was also under review. An update on that will make headlines when the statement lands on Thursday. 

Key Morningstar Metrics For Maersk Shares

• Fair Value Estimate: 17,600 DKK (£2,015);
• Current Price: 12,490 DKK;
• Morningstar Rating: ★★★★;
• Morningstar Economic Moat Rating: None;
• Morningstar Uncertainty Rating: High.

Another area that will keep investors on their toes is the current conflict in the Red Sea.

Since the middle of December, Iran-backed Houthi militants in Yemen have attacked vessels in the Red Sea, disrupting international trade on the shortest shipping route between Europe and Asia. In the wake of a capacity squeeze, Maersk's share price bounced.

"Generally, firms like Maersk won't have any more visibility than the market itself, but investors will be on the lookout for any info on whether this could last into the Spring or Summer", Field says.

Maersk Stock: Should I Buy, Sell or Hold?

The key driver for Field's fair value estimate of 17,600 DKK is the outlook for the ocean business, which generates around 75% of group revenue.

"We see volumes flatlining in 2023, before growing at a modest clip in the coming years," Field said in August 2023.

"The outlook for EBITDA margins is similar, with a very slight uplift after 2025, assuming flat-ish freight rates at around $2100 per 40-foot container equivalent unit, slightly above the levels witnessed in the years prior to the pandemic."

With the stock trading at 12,490 DKK, Field therefore views Maersk as undervalued and trading at a 29% discount.

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Johanna Englundh  Johanna Englundh is an editor for Morningstar in Sweden 

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