Investing.com — RBC Capital Markets initiated coverage of Veolia Environnement (EPA:) with an ‘outperform’ rating in a note on Monday, expressing optimism about Veolia’s growth trajectory and value proposition in the environmental services sector.
RBC analysts point to the progress Veolia has made since acquiring Suez, including operational improvements and an increasingly resilient financial structure.
The analysts note that Veolia’s cost efficiency program is expected to exceed targets, which could lead to annual EBITDA growth of around 12% through fiscal 2027.
The note highlights Veolia’s diversified services portfolio, which includes water management, waste management and energy services, and highlights the company’s long-term cost efficiency gains.
RBC suggests that Veolia’s cost control efforts have already yielded substantial results, contributing to around two-thirds of organic EBITDA growth in recent years.
Veolia’s comprehensive efficiency sharing frameworks and operational focus are expected to keep cost savings above the company’s target of €350 million per year, which has been crucial in securing favorable EBITDA margins and improving overall financial stability.
Additionally, RBC analysts point to Veolia’s focus on booster divisions – such as hazardous waste management and water technologies – as key growth drivers within its GreenUp initiative, which aims to generate 70% of Veolia’s revenue growth from these segments.
These high-margin, technology-driven divisions leverage Veolia’s proprietary technologies and strong market positioning to compete in specialized and fragmented markets.
According to RBC, Veolia’s portfolio of more than 4,400 patents underlines its technical advantage, especially in areas such as hazardous waste management and water treatment.
These booster segments will enable Veolia to increase its revenue share in growing regulated markets, the analysts said.
RBC analysts also underline Veolia’s defensive stance in the face of economic and political headwinds, citing the company’s hedged position against energy price swings and minimal exposure to French fiscal policy.
Veolia’s current debt levels are at the low end of the historical range, and RBC expects further deleveraging, enabled by free cash flow and disciplined capital investments.
This financial strength is seen as an asset that supports both dividend growth and potential future investments without compromising stability.
With a price-to-earnings ratio of 6.3x EV/EBITDA, RBC views Veolia shares as attractively valued compared to both historical norms and peer averages, and supports a price target of €37 per share, implying an upside potential of approximately 27% implies.
