Shares of AP Moeller - Maersk tumbled after Bank of America lowered its rating to Underperform, citing intensified structural overcapacity in ocean freight and expected earnings declines. The bank also cut its price target, reflecting an anticipated 23% downside amid market capacity expansion and geopolitical factors. Despite past outperformance, analysts warn of a downturn driven by route reopenings and reduced cash flow, with implications for Maersk's leverage and shareholder distributions.
Key Points
- Bank of America downgrades Maersk stock to Underperform due to increasing risks in the ocean freight sector.
- Price target reduced to 11,500 Danish crowns, indicating a potential 23% downside from recent close.
- Reopening of Red Sea routes anticipated to increase global shipping capacity by around 6%, intensifying market oversupply.
Shares of global shipping giant AP Moeller - Maersk experienced a notable decline on Friday following Bank of America’s decision to downgrade the stock’s rating to Underperform. The investment bank justified this move by highlighting that the risk-reward balance for Maersk is increasingly tilted towards downside risk, primarily due to structural overcapacity within the ocean freight sector and looming pressures on the company's earnings.
In conjunction with the rating adjustment, Bank of America revised its price target downward from 14,000 Danish crowns to 11,500, suggesting an approximate 23% drop from the stock’s latest closing price. By 09:58 GMT during Copenhagen trading, Maersk’s shares had dropped around 3%.
Previously, Maersk’s equity had outperformed the STOXX 600 Industrials index by roughly 30% over the past year, an achievement that came despite significant declines in spot freight rates. Bank of America attributed this relative strength to stronger-than-anticipated demand projected for 2025 and short-term support stemming from disruptions impacting ocean freight capacity. However, the analysts cautioned that these positive factors are diminishing as shipping capacity is expected to reenter the market.
Muneeba Kayani and her team at Bank of America emphasized the reopening of shipping lanes through the Red Sea as a critical element likely to weigh on Maersk’s profitability. Maersk has reinstated limited voyages on these routes, and the bank envisions a possible full reopening in the second quarter of 2026. This resumption, despite geopolitical tensions, would effectively augment global shipping capacity by an estimated 6%, further aggravating an already oversupplied environment.
"Our base case projects a full reopening of the Red Sea route by Q2 2026, which would increase market capacity and exert downward pressure on earnings," the analysts stated. This expected capacity build-up is a central factor behind their view that structural ocean freight overcapacity presents a downside risk.
Reflecting these headwinds, Bank of America slashed its 2026 EBITDA forecast for Maersk by 26%, positioning its estimate approximately 20% below the consensus expectations. The bank now anticipates that Maersk's 2026 EBITDA guidance will range from $4 billion to $7 billion, contrasting with a consensus estimate near $6.3 billion.
In addition to earnings concerns, the bank highlighted risks related to shareholder returns. It forecasted a potential halving of Maersk’s share buyback program, cutting it to $1 billion amid an anticipated cash burn of about $3.4 billion.
While noting that Maersk’s logistics and terminals divisions continue to perform relatively well, the analysts observed that these sectors contribute insufficiently to offset deteriorating fundamentals within the company's core ocean freight operations. Given the earnings pressures and cash flow trends, Bank of America expects Maersk’s leverage to shift from a current net cash position to nearly 0.9 times net debt to EBITDA by 2026.
With these dynamics in play, investors are advised to closely monitor developments in shipping capacity, geopolitical influences on route availability, and Maersk’s strategic responses to expected margin and cash flow challenges.
Risks
- Structural overcapacity in ocean freight markets leading to earnings pressure on Maersk.
- Potential full reopening of the Red Sea route in Q2 2026, increasing shipping volumes and depressing rates.
- Reduced shareholder returns forecasted due to expected cash burn and lower share buybacks.