Jefferies lifts Assa Abloy stock rating, raises target to SEK375

Jefferies upgraded Assa Abloy (ASAZY) to Buy with a price target of SEK375, citing a gradual recovery in 30% of its business, particularly in the U.S. renovation and remodel sector, and expecting growth exceeding 9% with M&A contributions. The upgrade is based on the company's defensive business nature and anticipated earnings improvements, despite a 20% year-to-date underperformance and mixed analyst sentiment, with other firms like Citi upgrading to Neutral while DNB Markets downgraded to Hold due to concerns about the U.S. market and FX impacts.

Analysis

Jefferies' recent upgrade of Assa Abloy (ASAZY) to Buy, with an increased price target to SEK375 from SEK330, signals a potentially favorable inflection point for the $35.3 billion building products company. The upgrade is predicated on observations of a gradual recovery in approximately 30% of Assa Abloy's business, notably within the U.S. renovation and remodel (R&R) sector, which is perceived to be at a cyclical trough. Jefferies anticipates that leading and mid-stage growth indicators in the U.S. nonresidential sector will translate into low to mid-single-digit growth, further augmented by M&A activity contributing over 5%, potentially pushing overall growth excluding foreign exchange impacts beyond 9%. This optimistic outlook is supported by the company's defensive business characteristics, its 30-year history of consistent dividend payments, and a moderate debt-to-equity ratio of 0.74. The stock's approximate 20% year-to-date relative underperformance and current valuation at the lower end of its historical range are cited as presenting a re-rating opportunity. However, this positive view is tempered by mixed sentiment from other analysts: Citi upgraded to Neutral (SEK280 target) citing U.S. construction market potential, while DNB Markets downgraded to Hold (SEK345 target) due to U.S. market and FX concerns, and Deutsche Bank maintained a Hold (SEK310 target) on lowered EPS estimates from FX headwinds, projecting a Q1 adjusted EBIT margin of 14.8%, below consensus. The upcoming Q1 results on April 23 will be critical in validating the recovery narrative.

Key Decisions for Investors

• Investors may consider Jefferies' Buy rating and Assa Abloy's current valuation as a potential entry point, particularly given its historical dividend consistency and the anticipated recovery in key segments.
• Closely monitor the upcoming Q1 earnings report on April 23 for confirmation of the U.S. R&R recovery, M&A integration success, and management's outlook on FX impacts and overall growth.
• Acknowledge the divergent analyst opinions and weigh the potential for a valuation re-rating against risks stemming from U.S. market uncertainties and persistent foreign exchange headwinds before adjusting positions.