Investing.com -- Analysts at Barclays have lowered their rating for Schneider Electric (EPA:SCHN) to "equal weight" from "overweight," citing concerns about increasing supply in the medium voltage (MV) market coinciding with uncertain demand.
The brokerage also flagged the challenge of achieving accelerated growth in the latter half of 2025 against a backdrop of difficult year-over-year comparisons and macroeconomic risks.
In a research note released Tuesday, Barclays stated that while the valuation of Schneider Electric’s stock appears to reflect existing risks, further upward re-rating is unlikely.
The analysts acknowledged that demand within the data center (DC) sector has been more resilient than initially anticipated.
Alongside the rating downgrade, Barclays also reduced its adjusted EBITA estimates for Schneider Electric by 1-2% for the fiscal years 2026 and 2027.
This revision reflects concerns regarding pricing pressures within the MV market and has led to a lowered price target of €235 for the company’s stock.
Barclays pointed out that while news flow regarding data center demand has been positive, it is unlikely to be a catalyst for near-term stock re-rating.
The analysts noted that while orders and revenue for Schneider Electric’s Sustainable Business division continue to show double-digit percentage growth, the exceptionally high levels of data center demand seen in 2023 and 2024, which contributed to valuation multiple expansion, are moderating.
Barclays also expressed concern about potential negative sentiment surrounding artificial intelligence.
The brokerage also raised concerns about Schneider Electric’s ability to meet its growth targets for the remainder of 2025.
According to Barclays’ calculations, the 7.3% organic growth reported for the first quarter implies a necessary acceleration in growth for the rest of the year to reach the midpoint of the company’s guidance and consensus estimates.
This comes at a time when year-over-year comparisons are becoming more challenging.
While acknowledging Schneider Electric’s typically conservative guidance and strong order book coverage, Barclays remains cautious about the risks to short-cycle industrial and construction demand given the current macroeconomic environment.
As a result, Barclays anticipates Schneider Electric will likely finish 2025 at the lower end of its 7-10% organic growth guidance.
Barclays noted that while higher selling prices due to the pass-through of tariff costs could present an upside risk to the outlook, the market is unlikely to reward the company for this to the same extent as it would for stronger underlying demand.
Overall, the analysts see limited potential for upside to consensus earnings estimates for fiscal years 2025 and 2026.
Looking at the broader electricals sector, Barclays suggested that Schneider Electric is better positioned than its peers to weather the biggest risk i.e. the potential end of the current capital expenditure cycle.
The analysts said that demand and margins within the electricals sector are currently at record highs, with electricals margins surpassing those of machinery companies for the first time in over two decades.
However, with supply rapidly entering the MV market and lead times and pricing normalizing, Barclays sees a significant probability of earnings growth stalling or even declining if demand cools.
Barclays observed that Schneider Electric’s margin gains over the 2019-2024 period have not been as substantial as many of its peers.
The analysts attributed this to Schneider Electric’s higher starting margin point and its consistent reinvestment of margin gains into research and development and capacity expansion in areas like data centers.
Barclays believes this strategy could lead to more strong demand and margins for Schneider Electric compared to its peers if the economic cycle turns.
Additionally, Barclays noted Schneider Electric’s current valuation offers support and arguably reflects its risk balance and franchise quality.