Veolia Environnement: Is the Undervaluation a Buying Opportunity?
Veolia Environnement (ENXTPA:VIE) has recently demonstrated strong stock performance, with returns of 4.4% over the past week, 14.5% over the last month, and a substantial 100.3% over five years. This impressive growth has naturally led investors to question whether the current valuation reflects true value. Recent coverage highlights Veolia’s central role in water, waste, and energy services, prompting a closer seem at its financial standing.
Decoding Veolia’s Valuation: A 6-Point Check
Simply Wall St’s initial valuation checklist scores Veolia at 3 out of 6 for being undervalued. This suggests potential, but requires deeper analysis. Two key valuation methods – Discounted Cash Flow (DCF) and Price-to-Earnings (P/E) ratio – offer different perspectives.
Discounted Cash Flow (DCF) Analysis: A Look at Intrinsic Value
A DCF model projects a company’s future cash flows and discounts them back to present value. For Veolia, a 2-Stage Free Cash Flow to Equity approach was used. The latest twelve-month free cash flow stands at approximately €1.96 billion, with projections extending to 2035, estimating around €2.07 billion in free cash flow by that year.
Based on these projections and a discount rate, the DCF analysis estimates an intrinsic value of €57.96 per share. Compared to the current share price of around €35.96, this indicates a potential undervaluation of 38.0%.
Result: UNDERVALUED
P/E Ratio: How Does Veolia Stack Up?
The Price-to-Earnings (P/E) ratio provides insight into what investors are paying for each euro of earnings. Veolia currently trades at a P/E of 19.7x, which is close to the industry average of 19.1x and slightly below the peer group average of 21.8x. Simply Wall St’s Fair Ratio for Veolia is 19.3x, considering factors like earnings growth, profit margins, and risk.
With Veolia’s actual P/E (19.7x) closely aligned with its Fair Ratio (19.3x), the shares appear reasonably valued based on earnings.
Result: ABOUT RIGHT
Narrative-Driven Valuation: Beyond the Numbers
While DCF and P/E ratios provide valuable data, a narrative-driven approach offers a more comprehensive understanding. Simply Wall St’s Community page allows investors to build a story around Veolia’s future revenues, earnings, and margins, linking them to a fair value and comparing it to the current price.
Bullish Scenario: Growth in Water Technologies &. Energy Services
A bullish narrative suggests a fair value of €36.22 per share, approximately 0.7% above the current price. This scenario focuses on growth drivers like wastewater reuse, low-carbon district heating, and high-value technology services. It anticipates gradual margin improvement, supported by M&A synergies and efficiency gains. Analysts supporting this view project revenue of €51.5 billion and earnings of €1.9 billion by 2028, with a future P/E of 16.2x.
Bearish Scenario: Risks from Decentralization & Debt
A more cautious narrative estimates a fair value of €27.77 per share, around 29.5% below the current price. This perspective highlights risks from decentralized energy and water solutions, potential pressure on legacy contracts, and concerns about debt levels (around €21 billion) and acquisition integration challenges. It projects revenue growth of 3.1% annually, profit margins in the mid-3% range, and earnings of €1.7 billion by 2028, with a future P/E of 14x.
Do you have a strong opinion on Veolia’s future? Share your insights and contribute to the conversation on Simply Wall St’s Community page.
