On Friday, UBS initiated coverage on Spire Inc. (NYSE:SR)stock with a Buy rating, setting a price target of $68.00. The firm's analysis suggests that Spire is undervalued based on several factors including expected earnings per share (EPS) growth and regulatory advantages in certain states.
UBS predicts that Spire can achieve a 6.4% EPS growth through 2027, which is above the consensus estimate of 5.6% and within the upper half of the company's long-term 5-7% EPS compound annual growth rate (CAGR). The firm's positive outlook is further bolstered by what it identifies as second quartile regulation, particularly highlighting supportive investment recovery mechanisms in Missouri and Alabama.
The growth of Spire's Midstream segment is another key factor contributing to UBS's optimistic stance. Recent acquisitions and investments in natural gas storage are expected to drive up earnings in this division. Additionally, UBS assumes that the Gas Marketing segment will maintain flat earnings, which does not detract from the overall positive forecast.
At a 12.7 times multiple on projected 2025 earnings, UBS believes that Spire's stock is currently factoring in a 10% earnings discount for the value of the Gas Utility segment. This implies that the market is almost disregarding the value contributed by the Midstream and Gas Marketing segments, which collectively account for approximately 15% of Spire's earnings. The price target of $68.00 reflects the firm's confidence in the inherent value of these segments and the overall growth prospects for Spire.
InvestingPro Insights
Spire Inc. (NYSE:SR) currently presents a mixed financial landscape, according to real-time data from InvestingPro. With a market capitalization of $3.39 billion and a P/E ratio of 15.72, the company exhibits stability in its valuation metrics. The adjusted P/E ratio for the last twelve months as of Q1 2024 stands slightly higher at 17.17, hinting at a market expectation of sustained earnings. Additionally, the dividend yield as of the latest data is an attractive 5.03%, which is particularly relevant for income-focused investors.
An InvestingPro Tip that aligns with UBS's positive stance is the company's history of raising its dividend for 20 consecutive years, showcasing a strong commitment to shareholder returns. Moreover, the company's revenue growth over the last twelve months as of Q1 2024 is 6.18%, which supports the view that Spire is on a path of steady financial expansion.
For investors seeking a deeper dive into the company's performance and prospects, there are additional InvestingPro Tips available that detail Spire's financial health and market position. For instance, the company's ability to maintain dividend payments for 54 consecutive years is a testament to its financial resilience and strategic management. To access these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. Currently, there are 6 additional InvestingPro Tips available that could further inform investment decisions regarding Spire Inc.
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