Vestas Shares Surge After Blockbuster Earnings

Return to profit, higher prices and forecast-beating order book impressed investors in the Danish wind turbine maker, even with high expectations

Johanna Englundh 7 February, 2024 | 10:53AM
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Danish wind turbine maker Vestas impressed the markets with its full year earnings report, sending its shares 6% higher on the Copenhagen stock exchange.

Although expectations were high ahead of Vestas (VWS) earnings report, after announcing several large orders in the fourth quarter, the Danish wind turbine maker managed to surprise investors with a record order intake.

“Vestas delivered a blockbuster fourth quarter, which included record order intake and strong sequential improvement in its profitability” Morningstar’s equity analyst Matthew Donen says, leaving the fair value estimate unchanged at 197 DKK, despite an increase in the share price on Wednesday.

Vestas Returns to Profit

The impact of higher selling prices for its wind turbines has seen the group return to profitability during the last two quarters, leading to full-year operating profit of €231 million (a 1.5% EBIT margin) compared to a €1.2 billion (£1.02 billion) loss in the previous year.

“Guidance of revenue between €16 billion and €18 billion at a 5% EBIT margin at the midpoint falls broadly in line with our expectations and is clear indication that Vestas’s positive momentum will continue into fiscal 2024,” Donen adds.

During the quarter Vestas received its largest ever US order, which helped propel full-year order intake 55% higher year on year to €18.5 billion, exceeding consensus estimates of €18.1 billion. Its order backlog grew by €10.6 billion to €60.1 billion as at the end of the 2023 financial year, offering investors with roughly three-and-a-half years’ visibility.

Investors worried about Vesta’s balance sheet will be reassured by the free cash flow of €1.7 billion during the fourth quarter, which more than offset the preceding three quarters of cash outflow. And for the second consecutive year the wind turbine maker declared no dividend, which also helped bolster the group’s financial position according to Donen.

Key Morningstar Metrics For Vestas Stock

• Fair Value Estimate: 197 DKK;
• Current Price: 198.56 DKK;
• Morningstar Rating: ★★★;
• Morningstar Economic Moat Rating: None;
• Morningstar Uncertainty Rating: High.

Vestas Faces Chinese Competition

A more selective approach in its bidding and higher turbine prices will help provide further margin expansion, but Morningstar’s Donen can see some dark clouds forming far away on the horizon.

“We remain skeptical on the group’s 10% long-term EBIT margin target due to the competitive nature of the industry which includes the increasing threat of Chinese competition and accelerating product cycles required to produce more efficient and thus larger turbines in order to keep the levelised cost of wind energy low,” Matthew Donen explains.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Vestas Wind Systems A/S183.20 DKK1.05Rating

About Author

Johanna Englundh  Johanna Englundh is an editor for Morningstar in Sweden 

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