Category: Stock Market

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nvidia has been on an impressive tear lately, but many investors are concerned about the longevity of Nvidia’s current position. It’s known to be a cyclical company, so a demand reduction in its GPUs (graphics processing units) is coming, although no one knows when.

With Nvidia trading on much of its future prospects, there isn’t much room for error. However, there are two companies that aren’t as high-flying as Nvidia and could be worth more than it five years from now.

The two companies? Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN), which are the fourth- and fifth-largest companies in the world, respectively.

Alphabet

When discussing which company is larger, I’m talking about market capitalization. Market cap is how much a company is worth and can be calculated by multiplying the shares outstanding by the stock price. Nvidia currently holds around a $3 trillion market cap, while Alphabet and Amazon are valued at around $2.3 trillion and $2.1 trillion, respectively. So, if Nvidia stays stagnant, these two would have to grow by 31% (Alphabet) and 45% (Amazon) to catch Nvidia.

Over a five-year span, those aren’t unrealistic outperformance rates, so the odds of either company surpassing Nvidia aren’t that low.

Alphabet has a strong case of being worth more than Nvidia solely on a valuation basis. I could talk about how Google Gemini is a fantastic generative AI model that is starting to pick up momentum after stumbling out of the gate or how Google Cloud is vital in artificial intelligence (AI) infrastructure. But the argument is far simpler than that.

Currently, Alphabet trades at 24.5 times forward earnings. While this is still more expensive than the broader market’s 22.3 times forward earnings (measured by the S&P 500 index), it’s still far cheaper than the three larger companies in front of it.

GOOGL PE Ratio (Forward) data by YCharts

With Microsoft and Apple trading at 34 and 33 times forward earnings, respectively, they garner a much higher premium than Alphabet.

While some may argue that this premium is warranted due to recent execution, I’d argue that Alphabet is just as deserving over the long term. If you gave Alphabet a 33 times forward earnings multiple, the company would be valued at $3.08 trillion — essentially the same size as Nvidia.

Alphabet doesn’t get nearly the respect that some other companies do in today’s market. As a result, I think it has a strong case to be worth more than Nvidia in the future, as it isn’t trading with lofty expectations built into the stock.

Amazon

Amazon’s case isn’t as straightforward as Alphabet’s. The stock trades at 44 times forward earnings, nearly identical to Nvidia’s 45 times forward earnings valuation.

However, I believe Amazon’s high valuation is a byproduct of its focus on efficiency. CEO Andy Jassy has been pushing for better operating efficiency since he was promoted to CEO. So far, Amazon excelled in this pursuit.

Segment	Revenue	YOY Revenue Growth	Operating Income	YOY Operating Income Growth
North American	$86.3 billion	12%	$5 billion	455%
International	$31.9 billion	10%	$903 million	N/A
AWS	$25 billion	17%	$9.4 billion	84%

Data source: Amazon. YOY = Year over year. Note: International was unprofitable last year.

With the impressive improvements in all divisions in a year, his plan is clearly working. However, Jassy isn’t done yet. Although these profit levels are the highest they’ve been since the peak of COVID, Jassy believes there are more gains to be had.

This combination of revenue growth (Amazon grew its revenue by 13% in the first quarter) with margin improvement causes earnings to rise rapidly, making the stock appear cheaper if the stock price doesn’t rise by the exact same amount.

Amazon is a solid business with serious staying power. Because of its track record of execution and solid growth, I think it will be worth more than Nvidia in five years. Nvidia’s business comes in waves, and although that’s great for peaks, it can hurt it when times aren’t so good.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Prediction: 2 US stocks that will be worth more than Nvidia 5 years from now appeared first on The Motley Fool Australia.

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• Better megacap stock: Nvidia vs. Microsoft
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• 45% of Warren Buffett’s $398 billion portfolio is invested in 3 artificial intelligence (AI) stocks
• Could Nvidia stock help you become a millionaire?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Zip Co Ltd (ASX: ZIP) shares have seen a dramatic turnaround in the last 24 months. After bottoming to multi-year lows of 28.5 cents apiece in October last year, the stock has now rallied to trade at $1.78 at the time of writing – its highest mark in two years.

In fact, Zip shares have spiked by 330% over the past 12 months, making them one of ASX’s top performers in that time.

With this surge, investors are questioning whether it’s too late to join the Zip bandwagon. Is it? Let’s see what the experts think.

What’s driving Zip shares higher?

Zip shares notched new multi-year highs of $1.82 apiece at Tuesday’s close. This is their highest since February 2022, as seen in the chart below.

This surge follows a significant turnaround in the company’s strategy and performance. Over the past year, Zip has pivoted from aggressive growth to a focus on profitability, which has been well-received by the market.

The company’s results for Q3 FY24 showed a 14.6% year on year increase in total transaction volumes (TTV) to $2.4 billion. More than 43% growth in transaction volumes came from the US alone.

Looking ahead, I see the company’s performance in the US market – where it has shown significant growth – as a key area to watch.

Additionally, the exit of Apple from the buy now, pay later (BNPL) market in the USA saw another buying thrust in Zip shares.

Is it too late to buy Zip?

Experts are divided on whether it’s too late to buy Zip shares at their current highs.

UBS and Ord Minnett both rate the BNPL company a buy, setting price targets of $1.55 apiece. Notably, this is below the current share price on Wednesday.

But, both brokers acknowledge that investors should consider the risks associated with BNPL stocks, especially in a higher interest rate environment.

The consensus from CommSec also suggests a positive outlook, with four out of eight firms rating Zip as a buy.

The outlook on buying Zip shares also depends on several personal factors, including (but not limited to) long-term investment goals, personal risk tolerances, and current financial position.

The decision to buy a stock or not shouldn’t be solely based on price movement, either. Business fundamentals are what matter over the long run.

So, for those investors with a long-term view, an appraisal of the company’s long-term prospects – rather than month-to-month movements in its share price – is more appropriate.

In that vein, depending on your answers to the above points, it may or may not be too late to buy ZIp shares.

Foolish takeaway

Zip shares have delivered stellar gains in the past year, with a 330% increase. While the company’s strategic shift towards profitability and the exit of a major competitor has boosted its prospects, remember to conduct your own thorough due diligence.

The post Is it too late to buy Zip shares at their 2-year highs? appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Zip Co. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

As the ASX All Ordinaries Index (ASX: XAO) pushes less than 1% into the green this past week, one All Ords stock continues its impressive run.

Shares in WA1 Resources Ltd (ASX: WA1) shares have skyrocketed 250% in the past 12 months and are up 52% this year.

They were valued at $18.84 per share before the open on Wednesday, right before the company requested a trading halt of its securities.

The reason? A market-sensitive announcement regarding an update at its Luni carbonatite asset, located in Western Australia. Let me explain.

Why is this ASX All Ords stock on ice?

WA1 Resources shares are frozen today after a company request before the market opened.

The ASX All Ords stock announced it has completed the initial mineral resources estimate (MRE) for its Luni asset, located within the company’s West Arunta Project in WA.

The Luni deposit has been identified as “the most significant niobium discovery in over 70 years”, according to WA1.

Niobium is a metal highly resistant to corrosion. Consequently, it is favoured in the production of various alloys, such as stainless steel.

The initial MRE for Luni showed an intersection of 200 million tonnes (Mt) at 1.0% Niobium (Nb2O5). Assays contained a high-grade subset of 53 Mt at 2.1% Nb2O5 as well.

This estimate is based on drilling completed up to the end of 2023. It will guide further resource definition drilling within the same vicinity for the ASX All Ord stock.

WA1 managing director Paul Savich emphasised the strategic importance of Luni, saying:

This mineral resource estimate confirms Luni as the most significant niobium discovery globally in over 70 years. This is a remarkable achievement within two years from discovery in an entirely greenfield belt in the West Arunta.

The shallow, high-grade nature of the deposit, coupled with the recently announced initial metallurgy results, indicates the deposit may be amenable to conventional processing techniques and reinforces Luni as a highly strategic critical mineral asset.

Brokers are optimistic

Aside from today’s update, metallurgical test work completed at Luni saw investors start a feeding frenzy for the ASX All Ords stock last month.

The program produced high-grade niobium concentrates that are comparable to industry recovery rates.

As a result, analysts at Bell Potter see a significant upside for this All Ords stock, saying WA1 passed “a significant de-risking hurdle” with the above results.

The broker also believes the Luni project could generate $514 million in annual pre-tax earnings, valuing the ASX All Ords stock at $5.6 billion.

It upgraded its price target on the company to $28.00, suggesting a potential upside of 48% at the time of writing.

The post Up 52% this year, why is this ASX All Ords stock halted today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The S&P/ASX 200 Index (ASX: XJO) is having a poor session on Wednesday. In afternoon trade, the benchmark index is down 0.4% to 7,796.7 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

Incitec Pivot Ltd (ASX: IPL)

The Incitec Pivot share price is down almost 2% to $2.85. This follows news that the agricultural chemicals company has ended negotiations with PT Pupuk Kalimantan Timur for the sale of its fertilisers business. The deal for the Incitec Pivot Fertilisers business was estimated to be valued at over $1 billion. Management advised: “Throughout the sale negotiations with PKT, we were focused on completing a sale transaction in a timely manner to allow us to commence our on-market buyback of up to $900 million. We have determined we are unlikely to achieve this outcome with PKT in an acceptable timeframe, and as a result we made the decision to cease negotiations with them.”

Kogan.com Ltd (ASX: KGN)

The Kogan share price is down almost 3% to $4.02. This is despite there being no news out of the online retailer. However, it is worth noting that Kogan’s shares have been under significant pressure in recent months. So much so, its shares have lost half their value since the middle of March and hit a 52-week low this morning. Investors may be concerned by rising competition from the likes of Amazon, Temu, and Shein.

Insignia Financial Ltd (ASX: IFL)

The Insignia Financial share price is down over 6% to $2.34. This financial services company’s shares rose almost 14% on Tuesday in response to speculation that it could be a takeover target of a private equity firm. The media report claimed that the company, which was formerly known as IOOF, had called in Citi to support it with takeover approaches. However, after the market close yesterday, the company responded to a speeding ticket from the ASX by advising that “Citi has not been engaged to field any offers and the company is not aware of any offer.”

Resimac Group Ltd (ASX: RMC)

The Resimac share price is down a further 2.5% to 79.5 cents. This non-bank lender’s shares have been under pressure this week after it announced the sudden exit of its CEO without reason. According to the release, Scott McWilliam has resigned from his employment with Resimac after 21 years of service. This included six years as its CEO and three years as its joint CEO following the merger with Homeloans Limited. It also advised that Mr McWilliam will take a period of leave before his employment contract ends on 1 September 2024.

The post Why Incitec Pivot, Kogan, Insignia, and Resimac shares are dropping today appeared first on The Motley Fool Australia.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Kogan.com. The Motley Fool Australia has recommended Amazon and Kogan.com. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The paradigm shift represented by artificial intelligence (AI) is having a pronounced effect on the tech landscape, and nowhere is that more apparent than Nvidia (NASDAQ: NVDA). The company provides the chips with the computational horsepower to power AI, driving its financial results and stock price into the stratosphere. Nvidia stock is up more than 200% over the past year, resulting in a 10-for-1 stock split, which was completed just last month.

Despite the stock’s impressive run, Wall Street is reviewing its pricing models, and one analyst believes Nvidia still has plenty of upside ahead.

Fueled by Blackwell

UBS analyst Timothy Arcuri reiterated his buy rating on Nvidia stock and increased his price to $150. That represents potential upside for investors of 19%, compared to the stock’s closing price on Friday. The analyst believes that Nvidia’s recent focus on rack-scale servers is underappreciated and could spark additional gains for the chipmaker.

In March, Nvidia released details for its GB200 NVL72 system, powered by its GB200 Grace Blackwell Superchip. The processor contains “two high-performance NVIDIA Blackwell Tensor Core GPUs [graphics processing units] and the NVIDIA Grace CPU with the NVLink-Chip-to-Chip (C2C) interface.” The platforms are packed with either 36 or 72 GB200 GPUs, delivering up to 1.8 terabytes of throughput per GPU.

Arcuri’s channel checks suggest that demand for the Blackwell servers is “exceedingly robust,” noting that demand was “materially larger” than when he checked just two months ago. This could help push Nvidia’s earnings per share (EPS) to $5 in 2025. For context, the company generated split-adjusted EPS of $1.19 for fiscal 2024 (ended Jan. 28), so this represents a potential increase in profits of 320%.

I think the analyst hit the nail on the head. Every time Nvidia expands its domain, the company also increases its total addressable market and potential for greater profitability.

Nvidia’s stock is currently selling for 75 times forward earnings. However, if the analyst’s calculations are correct, the stock is currently trading for 24 times forward earnings, a bargain given the opportunity ahead.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Nvidia stock going to $150 in the wake of its high-profile 10-for-1 stock split? appeared first on The Motley Fool Australia.

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Danny Vena has positions in Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

S&P/ASX 200 Index (ASX: XJO) investors have been waiting patiently for central banks to finally begin cutting interest rates.

Very patiently.

Here in Australia, the Reserve Bank of Australia first moved to contain fast-rising inflation on 4 May 2022. At the time, the official cash rate stood at a historic low of 0.10%. The RBA then lifted that by 0.25% to 0.35%.

By the time the smoke cleared, and following a final 0.25% hike on 8 November 2023, the cash rate stands at the current 4.35%.

Now with inflation proving extra sticky down under, ASX investors are largely resolved that RBA interest rate cuts are likely off the table until 2025.

But how about the US Federal Reserve?

While Fed easing won’t lower the costs for Aussie mortgage holders, it should offer some tailwinds for many ASX 200 stocks.

The Fed, as you may know, made its own first rate hike on 17 March 2022, boosting the official funds rate by 0.25% to bring it in the range of 0.25% to 0.50%. The final 0.25% increase came on 26 July 2023.

That brought the official US rate to the current 5.25% to 5.50% range, the highest level in over 20 years.

Will ASX 200 investors see Fed interest rate easing in September?

Circling back to our headline question then, can ASX 200 investors expect some interest rate relief from the Fed this year?

As for the Fed’s next meeting on 31 July, this looks unlikely.

Speaking at the Senate Banking Committee yesterday (overnight Aussie time), Federal Reserve chair Jerome Powell said, “More good data would strengthen our confidence that inflation is moving sustainably toward 2%.”

While Powell stressed that he wasn’t providing any timelines for upcoming interest rate moves, he did open the door for potential easing in September, when the Federal Open Market Committee (FOMC) meets again.

“Elevated inflation is not the only risk we face,” Powell said (quoted by Bloomberg).

“The latest data show that labour-market conditions have now cooled considerably from where they were two years ago. And I wouldn’t have said that until the last couple of readings,” Powell added.

What are the experts saying?

So, will the ASX 200 enjoy lower US interest rates in the final quarter of 2024?

Derek Tang, an economist at LH Meyer, said a weakening US jobs market is a key lever to “spur” Powell into action.

“His focus is squarely on the labour market. Further softening in the labour market, even if further disinflation is not delivered, is enough to spur action,” Tang said.

Bloomberg economist Anna Wong added:

Powell’s remarks to lawmakers are rife with references to labour-market risks. The Fed now appears to be placing equal weight on the employment leg of its dual mandate in contrast to the past two years, when it explicitly prioritised price stability.

Given our forecast for the unemployment rate to climb to 4.5% in 4Q, we expect that by year-end the Fed will be prioritising the employment leg of its mandate.

The S&P 500 Index (SP: .INX) closed up 0.1% overnight following Powell’s address.

The ASX 200 is down 0.5% today.

The post Can ASX 200 investors expect a Fed interest rate cut in September? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Many of Australia’s top brokers have been busy adjusting their financial models and recommendations again. This has led to the release of a number of broker notes this week.

Three ASX shares that brokers have named as buys this week are listed below. Here’s why their analysts are feeling bullish on them right now:

Northern Star Resources Ltd (ASX: NST)

According to a note out of Citi, its analysts have upgraded this gold miner’s shares to a buy rating with an improved price target of $15.90. The broker is feeling positive about Northern Star due to its belief that gold prices will be strong for the foreseeable future. Especially with Citi expecting the US Federal Reserve to cut interest rates in the near future, which will boost the appeal of the precious metal. In light of this and with Northern Star’s shares recently underperforming peers, Citi thinks that now could be the time to snap up its shares. The Northern Star share price is trading at $12.90 on Wednesday.

Qantas Airways Limited (ASX: QAN)

A note out of Morgans reveals that its analysts have retained their add rating on this airline operator’s shares with an improved price target of $7.00. Ahead of its results release next month, Morgans is forecasting Qantas to deliver its second largest profit in its history. It has pencilled in an underlying profit before tax of approximately $2.08 billion for the 12 months. The broker believes this will allow the Flying Kangaroo to announce a new $300 million on-market share buyback. And while it feels it is too soon for dividends this year, it expects payouts to resume from FY 2025 with a dividend of approximately 15 cents per share. The Qantas share price is fetching $6.08 today.

Telstra Group Ltd (ASX: TLS)

Analysts at Goldman Sachs have retained their buy rating on this telco giant’s shares with an improved price target of $4.30. This follows news that Telstra is lifting its mobile prices by $2 to $4. Goldman was pleased with the news and believes it will boost its average revenue per user (ARPU) metric by $2.50. It also highlights that this demonstrates that mobile market rationality remains, particularly when combined with the recent Optus increase. In response to the update, the broker has lifted its earnings and dividend estimates for FY 2025 and FY 2026. The Telstra share price is trading at $3.79 at the time of writing.

The post Top brokers name 3 ASX shares to buy today appeared first on The Motley Fool Australia.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Medibank Private Ltd (ASX: MPL) shares had a volatile FY24. The stock began the financial year at $3.52 and ended at $3.73, resulting in a 6% gain for the period.

But investors saw their Medibank shares trade as high as $3.91 in March before sliding to six-month lows of $3.41 by May. Quite the range.

After a year of turbulence – both in the markets and in the business – investors are curious whether FY25 will bring any significant changes. Let’s review last year’s performance and the outlook for the upcoming year for Medibank shares.

Medibank shares FY24 recap

Owning Medibank shares in FY24 was a turbulent affair. Even though its financials were reasonably strong, it still had to deal with regulatory scrutiny following the 2022 cyberattack.

Medibank reported a revenue increase of 3.3% to $4.02 billion in its H1 FY24 results in February. The company also saw a 104.8% rise in net profit after tax (NPAT), reaching $491.9 million.

Although, as my colleague Mitch reported, around $81 million of this result stemmed from accounting changes that were related to COVID-19 claims.

Management also declared an interim fully franked dividend of 7.2 cents per share, up 14.3% from the previous period.

Impact of the 2022 cyberattack on Medibank shares

It’s worth highlighting that the 2022 cyberattack had lingering effects on Medibank shares even in FY24. As a reminder, the breach reportedly exposed sensitive customer information, including personal and health data.

Consequently, the Australian Information Commissioner (OAIC) has commenced civil penalty proceedings, alleging Medibank failed to protect customer data adequately. The potential fines – though speculative – continue to loom over the company.

FY25 outlook: Opportunities and challenges

UBS sees potential in Medibank shares for FY25. According to my colleague Tristan, the broker noted that Medibank’s claims inflation was better than expected at 2%, compared to the 2.6% guidance.

UBS forecasts the private health insurance margin will remain above 8% from FY24 to FY26. Although Medibank’s policy numbers fell slightly, analysts remain optimistic about a rebound with projected growth of 0.9% and projected dividends of 18 cents per share this year.

Goldman Sachs meanwhile maintains a neutral rating on Medibank shares, with a price target of $3.70.

The broker appreciates Medibank’s defensive earnings and manageable claims environment. But, due to the current valuation, it has “a preference” for alternatives like NIB Holdings Limited (ASX: NHF), which it believes offers better growth prospects.

Foolish takeaway

Medibank shares were relatively flat in FY24, but the outlook for FY25 could bring opportunities, some experts note.

Investors should keep an eye on the company’s ability to manage costs, grow its policy base, and navigate ongoing legal challenges. In any situation, remember to consider personal risk tolerances and conduct your own due diligence.

The post Can Medibank shares expect a healthy FY25? appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

AGL Energy Ltd (ASX: AGL) shares faced a fairly turbulent run in FY24, only just finishing the year out of the red.

In the 12 months to June 28 2024, the energy stock gained just 0.18%, closing the year at $10.83 per share.

The saving grace came in February, when the broader resources and energy sectors began to rally, supported by strengthening commodity prices.

But will FY25 bring a change in fortune for AGL shares? Here’s a look at the year in review and what the experts say about FY25.

AGL shares FY24 review

AGL shares came back stronger in the second half of the financial year following a series of company-specific announcements.

The company boosted its FY24 earnings guidance in May. According to my colleague James, management now expects its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $2.1 and $2.2 billion.

This is above the previously forecasted range of $2 to $2.17 billion. If AGL hits this target range, it represents a 56% to 61.5% increase compared to the company’s FY23 EBITDA.

Additionally, AGL anticipates its underlying net profit after tax (NPAT) to be between $760 million and $810 million, a 2.9-fold increase over the FY23 result.

In June, the company announced a $150 million deal to partner with UK-based Kaluza to digitise and simplify energy billing as part of its Retail Transformation Program (RTP). Once settled, AGL will own 20% of Kaluza.

As my colleague Bernd reported, the RTP initiative aimed to reduce operating expenses and capital expenditure, with the benefits expected to be realised in FY28.

However, the program entails significant upfront costs, estimated at $300 million over four years, which may or may not pressure the AGL share price in the short term.

Investment potential

Fund managers have recently highlighted AGL’s investment potential. L1 Capital, in its recent investor presentation, said AGL was well-positioned to benefit from surging electricity demand.

L1 said AGL was the lowest-cost baseload generator in Victoria and New South Wales. With rising electricity demand stemming from data centres, electric vehicles, and artificial intelligence (AI), the energy giant could benefit from these tailwinds.

The fund expects AGL to generate strong free cash flows, which “can fund high dividends and substantial investment in transition in areas such as batteries with solid returns”.

Valued at an enterprise value to EBITDA ratio (EV/EBITDA) of 4.5 times, AGL shares are “well below historical range” of around 6 times, according to L1. This ratio is similar to the price-to-earnings ratio (P/E).

Future outlook for AGL shares

The energy company is currently trading at $10.52 per share, with a trailing dividend yield of 4.64% and a P/E ratio of 18.4 times.

Despite the challenges faced in FY24, AGL’s strategic initiatives and upgraded earnings guidance could offer a positive outlook for FY25. As a reminder, always consider the risks involved and conduct your own due diligence.

The post AGL shares struggled in FY24. Will FY25 be different? appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

S&P/ASX 200 Index (ASX: XJO) stock Incitec Pivot Ltd (ASX: IPL) is taking a tumble today.

Shares in the company – which manufactures explosives, chemicals and fertilisers – closed yesterday trading for $2.90. In morning trade on Wednesday, shares are swapping hands for $2.79 apiece, down 3.8%.

For some context, the ASX 200 is down 0.6% at this same time.

Here’s what’s happening.

Why is the ASX 200 stock under pressure?

The Incitec Pivot share price is sliding after the company announced it had ended negotiations with PT Pupuk Kalimantan Timur for the sale of its fertilisers business, Incitec Pivot Fertilisers, a deal estimated to be valued at over $1 billion.

The ASX 200 stock highlighted the advanced stage of these negotiations in its half-year results, released on 16 May.

At the time, CEO Mauro Neves said:

We are in advanced negotiations for a potential sale of our fertilisers business to PT Pupuk Kalimantan Timur, who are a major fertilisers producer in Asia and current supplier of urea to Australia…

With negotiations for the sale of IPF not yet concluded, our on-market share buyback of up to $900 million remains on hold.

Today Incitec Pivot said that after carefully considering how to maximise shareholder value while balancing the risks of completing the sale within a reasonable timeframe, management had opted to pull the plug.

On the plus side, with the sale off the table, the ASX 200 stock will now commence its suspended on-market share buyback program of up to $900 million. Management said the company will prioritise the buyback for the benefit of its shareholders.

Incitec Pivot will continue to manage its Dyno Nobel and Incitec Pivot Fertilisers businesses separately.

Commenting on the ceased sale negotiations, Neves said:

Throughout the sale negotiations with PKT, we were focused on completing a sale transaction in a timely manner to allow us to commence our on-market buyback of up to $900 million. We have determined we are unlikely to achieve this outcome with PKT in an acceptable timeframe, and as a result we made the decision to cease negotiations with them.

Neves said the ASX 200 stock will continue to assess options “for the structural separation of the two businesses”, while the immediate focus will be the share buyback program.

As for Dyno Nobel and Incitec Pivot Fertilisers, Neves added:

Led by a talented global executive leadership team, our Dyno Nobel business is being transformed into a global operation which is expected to substantially improve its financial performance.

Our IPF business remains focused on value accretive market share growth and is in a strong position for the agricultural season ahead.

Incitec Pivot reconfirmed the FY 2024 earnings guidance reported in its half-year results for its Dyno Nobel and IPF businesses.

The post ASX 200 stock tumbles as $1 billion deal goes south appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.