Citigroup upgrades Weir Group to 'buy' on potential upside risk

18 May 2015 09:17

Shares in UK-listed industrial engineer Weir Group were advancing on Monday after analysts at Citigroup lifted their rating on the stock from 'neutral' to 'buy' and hiked their target price from 1,750p to 2,200p.The bank said that the risk-reward balance on earnings upgrades at Weir is "now tilted to the upside in our view". Consensus forecasts for Weir's earnings per share (EPS) this year have dropped by around 40% and both the oil and gas division and minerals business "closer to trough". "We see scope for a move to earnings upgrades through 1H 2016E or even 2H 2015E as the rate of downgrades slows significantly and the negative EPS momentum could turn as the North American Rig count troughs in coming weeks on our forecasts," Citi said. In light of the recent downturn in oil markets, the bank has estimated that 40% of global oil projects could be uneconomic with significant stranded asset potential. Citi said: "The economics of North American Shale remain second quartile on the cost curve and therefore should remain competitive as supply from higher break-even sources is reined in. We view this as structurally supportive of Weir's position in oil and gas. "We acknowledge there are downside risks such as further pricing pressure and potential swift supply response capping rig recovery but we view these as receding risks." Weir's shares were up 2.9% at 1,952.64p by 09:52.