Citi Upgrades Ferrovial Shares to "Buy" — Bank Forecasts High Profitability for the I-24 Project

Citi upgraded its rating for shares of Spanish infrastructure group Ferrovial from "neutral" to "buy." According to the bank's assessment, the decline in the company's share price following its acquisition of the I-24 toll highway concession in the US does not reflect the project's true economic potential.

Citi set a target price of €59.40 for Ferrovial shares, compared to the previous €59.50. The bank expects a total return of 16.8% over the next 12 months, comprising a 14.9% increase in share price and a 1.9% dividend yield.

Since the concession was secured on August 19, Ferrovial's shares have fallen by approximately 7%, while the SXOP index, which tracks European construction and building materials companies, dropped 2%. At its lowest point, the company's market capitalization decreased by approximately €8.7 billion, or 22%. Later, following the publication of additional information about the structure of the concession fee payments, the company recovered approximately €3 billion of the lost value.

According to Citi's explanation, investors were initially concerned that the $24.8 billion concession fee payment would need to be made entirely upfront or within a short construction period. Such a scenario would have placed significant pressure on the company's cash resources or necessitated additional share issuance. However, it later became clear that the bulk of the amount would be paid in stages over the entire duration of the concession.

The bank estimates that the I-24 project could achieve a 13.2% internal rate of return (IRR) on capital. This forecast is based on a financing structure consisting of 75% debt and 25% equity. In addition, a $5.4 billion equity investment in the project is planned for the later stage of construction.

Ferrovial holds a 65% stake in the project. According to Citi's calculations, every additional $1 billion in construction costs would change the project's return on capital by 0.5 percentage points.

The bank also forecasts growth in the company's financial results. Citi expects Ferrovial's earnings per share (EPS) to grow by approximately 13% annually between 2027 and 2030, compared to an average forecast of 5% for comparable companies. The bank considers the company's pricing power and strong position in the toll roads segment to be the main drivers of this growth.