Goldman Sachs raises FLSmidth stock to Buy, hikes target to DKK430

Goldman Sachs upgraded FLSmidth (FLS:DC) to Buy with a price target increase to DKK430.00 from DKK340.00, citing anticipated SG&A savings and a favorable shift in product mix leading to a projected 320 basis point margin improvement to 14.2% by 2027. The upgrade also reflects the potential divestiture of FLSmidth's Cement business, which could transform it into a pure-play mining company with a higher valuation, and expectations for increased orders based on current EPCM study work, forecasting order outperformance versus consensus by fiscal year 2025.

Analysis

Goldman Sachs has upgraded FLSmidth & Co A/S (FLS:DC) to Buy from Neutral, increasing the price target to DKK430.00 from DKK340.00, primarily driven by revised margin expectations. The investment firm anticipates significant margin improvement for FLSmidth, projecting a 320 basis point increase to 14.2% by 2027, attributed to expected SG&A savings and a more favorable service and product mix. This outlook positions FLSmidth's adjusted EBITA forecast approximately 2% above the Visible Alpha Consensus for the upcoming year. Goldman Sachs contends that FLSmidth's stock warrants a re-rating, noting its current 12-month forward EV/EBIT multiple of 9.9x is below its 10-year median of 11.5x and significantly trails its mining equipment peers' average of 14.35x; this gap is expected to narrow as margins and Return on Invested Capital (ROIC) approach those of its peers. A key catalyst for this potential re-rating is FLSmidth's exclusive discussions to divest its Cement business, a move that could transform it into a pure-play mining company focused on copper and gold with an enhanced returns profile, potentially leading to a higher valuation. Furthermore, ongoing discussions with Engineering, Procurement, and Construction Management (EPCM) partners regarding study work, historically an early indicator of increased orders within 12-18 months, support a positive future outlook. Despite near-term caution due to tariff uncertainties impacting demand, Goldman Sachs forecasts FLSmidth's group orders will surpass consensus estimates by 0.3%, 0.7%, and 1.8% for fiscal years 2025, 2026, and 2027 respectively, as these studies are anticipated to convert into orders from fiscal year 2026.

Key Decisions for Investors

• Investors should consider the positive re-rating potential for FLSmidth, driven by Goldman Sachs' upgraded margin outlook and the stock's current valuation discount relative to its historical median and mining equipment peers.
• The planned divestiture of the Cement business is a significant potential catalyst; its successful completion could transition FLSmidth to a more highly valued pure-play mining entity focused on strategic commodities like copper and gold.
• Monitor the progression of EPCM partner studies into firm orders from FY2026, which Goldman Sachs anticipates will lead to group orders exceeding consensus, while remaining mindful of near-term demand risks associated with tariff uncertainties.