Barclays upgrades Tomra Systems to ‘overweight,’ flags Collection growth potential

Investing.com — Barclays (LON:) upgraded Tomra Systems ASA to an “overweight” rating on Friday, citing growth potential in the company’s Collection business and reduced risks in its Recycling and Food divisions.

Shares of the Norway-based company were up 3.2% at 08:55 ET (13:55 GMT).

The brokerage raised its price target for Tomra’s stock to NOK 190 from NOK 165, reflecting an 18% upside to the company’s share price at the time of the report.

Analysts at Barclays flagged the increasing adoption of Deposit Return Schemes across various markets as a key driver of growth for Tomra. 

With new DRS legislation set to be implemented in countries like Poland, Spain, Portugal, and the UK over the next several years, Tomra’s Collection segment is expected to achieve high-teens compound annual growth rates from FY2024 to FY2029. 

This momentum positions the Collection business as the highest-value segment within the company.

While the Recycling and Food divisions have faced recent headwinds, Barclays noted that earnings downgrades in these segments appear to be tapering off. 

Additionally, the analysts pointed to Tomra Horizons, the company’s innovation-focused venture, as a source of untapped potential. 

Projects like feedstock plants and textiles recycling are still in early stages but could become significant contributors to future earnings if successfully scaled.

Barclays also anticipates strong financial performance for Tomra, projecting revenue growth at 13% CAGR and adjusted earnings per share growth of 24% over FY2024 to FY2027. 

The analysts flagged Tomra’s ability to capitalize on policy-driven sustainability trends, particularly in Europe, as a factor bolstering investor confidence.

Barclays acknowledged potential risks, including the stock’s high valuation and its reliance on cyclical industrial performance. However, they remain confident in Tomra’s growth potential, driven by increasing demand for circular economy solutions and stricter recycling regulations.