Investing.com -- BofA Securities in a note dated Monday has downgraded German construction firm Hochtief (ETR:HOTG) to "underperform" from "buy,” citing a more uncertain macroeconomic outlook.
Shares of the company were down 3.9% at 06:22 ET (10:22 GMT).
The downgrade comes with a revised price objective of €165, down from €167. Analysts stated, "We downgrade Hochtief to Underperform (from Buy), with a new price objective of €165 (from €167), on a slightly lower valuation for the US business due to a more uncertain macro-outlook."
While Germany’s recently announced €500 billion infrastructure stimulus program has generated optimism around construction-related stocks, Hochtief is unlikely to be a major beneficiary.
"While the announcement of the German €500bn infrastructure stimulus creates a thematic tailwind, we note that Hochtief’s exposure to Germany is very low, at 3% of 2024A sales," BofA Securities stated.
Instead, the company is heavily reliant on its U.S. operations, which contribute approximately 60% of its profit before tax.
Any slowdown in the U.S. economy could have a disproportionate impact on Hochtief’s performance.
Another factor behind the downgrade is the stock’s valuation. "Trading at 17.0x 2025E P/E, the stock no longer offers a relevant valuation discount vs US E&C peers, following its c.60% relative outperformance YTD," analysts observed.
Previously, Hochtief had traded at a discount compared to its U.S.-listed engineering and construction peers, such as Jacobs Engineering (NYSE:J), Fluor (NYSE:FLR), AECOM, and Quanta Services (NYSE:PWR), but that valuation gap has now closed.
Additionally, the pace of share purchases by ACS, Hochtief’s majority owner, has slowed significantly.
"The pace of ACS’s stock purchases in Hochtief slowed notably in Q4’24 (€10m vs €65mn in Q3), suggesting a more cautious stance from the majority owner," BofA analysts noted. ACS currently holds an 80.1% stake in the company, and its reduced buying activity may indicate tempered confidence in further upside potential.
Despite the downgrade, BofA Securities slightly raised its earnings per share forecasts by 1-2%, due to improved expectations for Hochtief’s German business.
However, analysts remain cautious, warning that "while we continue to believe the outlook for the US business (c.60% of PBT) is strong in 2025, any softening of macro trends could hamper sentiment."
The decision to downgrade Hochtief reflects a combination of valuation concerns, macroeconomic risks, and reduced shareholder activity.
While the company maintains strong order backlogs in key sectors such as data centers and healthcare, the broader economic environment and its recent stock performance suggest limited upside potential in the near term.