A.P. Moller-Maersk stock falls as UBS downgrades on lack of catalysts

Investing.com — UBS downgraded shares of AP Moeller – Maersk A/S B (CSE:) to Neutral from Buy on Thursday, citing a lack of conviction for a structural re-rating of the stock in the near term.

The investment bank also reduced the price target to DKr 11,000 from the previous DKr 13,953.

The shipping company’s shares fell 1.8% in European trading.

While it acknowledged the valuation discount compared to historical averages, peers, and fleet replacement costs, UBS analysts voiced concerns over potential overcapacity in the Ocean sector and investor apprehension regarding Maersk’s increased capital allocation to its Logistics transformation.

“In this context we argue many investors could potentially perceive Maersk as a value trap over the next quarters,” analysts noted.

UBS’s revised outlook suggests that the shipping industry, including Maersk, may face an extended period of free cash flow (FCF) burn starting in the second half of 2025. The firm’s updated supply/demand model indicates the likelihood of the industry encountering overcapacity issues by late 2024 or early 2025, potentially resulting in FCF burn and EBIT losses at an industry level from the latter half of 2025.

The report also notes that a Trump presidency could temporarily support Transpacific rates due to a potential front-loading of imports from China in anticipation of new tariffs. However, this scenario could delay the industry’s move to FCF burn until late 2025 or early 2026.

And while it may offer some temporary upside to the share price, “it will also likely amplify the mid-term overcapacity and pressure on the industry profitability as tariffs are likely to be a headwind to future volume growth,” analysts wrote.

UBS outlined two scenarios for Maersk’s stock valuation: an upside potential of DKr 14,000 per share and a downside risk of DKr 8,000 per share. The upside scenario assumes that ocean demand exceeds expectations, leading to sustained higher freight rates, alongside a potential resumption of Maersk’s share buyback program and strategic logistics acquisitions.

Oppositely, the downside scenario reflects the possibility of ocean rates falling below 2019 levels due to factors such as the reopening of the Red Sea and a mixed operational performance in the Logistics sector.