Morgan Stanley Initiates Coverage on Ormat With 'Overweight' Rating
Translated & summarized from Bizportal by baba
Morgan Stanley initiated coverage of Israeli geothermal company Ormat with an "Overweight" rating and a $123 price target, suggesting a 34% upside. The bank also covered Fervo Energy, highlighting Ormat's established operations and potential in enhanced geothermal systems (EGS). Increased demand from AI data centers and government support are driving interest in geothermal energy. Ormat's stock has been volatile, with mixed analyst opinions preceding Morgan Stanley's positive outlook.
The story in 5 lines · by baba
- Morgan Stanley initiated coverage of Ormat with an "Overweight" rating and a $123 price target, indicating a 34% potential upside.
- Ormat is described as an established geothermal leader with potential in enhanced geothermal systems (EGS).
- Demand from AI data centers for reliable, clean, 24/7 power is a key driver for geothermal energy.
- The U.S. government is supporting the sector, with Ormat receiving $35 million for two projects.
- Ormat's stock has experienced volatility, and market sentiment among analysts is currently divided.
Morgan Stanley has launched coverage of Ormat, an Israeli geothermal energy company, with an "Overweight" recommendation and a price target of $123 per share. This target represents a potential upside of approximately 34% from Ormat's closing price of $91.66 on Wednesday. The bank also initiated coverage on U.S.-based Fervo Energy, with a similar "Overweight" rating and a $23 price target.
Analyst Devin McDermott described Ormat as an established leader in conventional geothermal energy, which utilizes natural underground heat reservoirs. He noted that the company's long-standing operations continue to grow attractively, and it also has potential in enhanced geothermal systems (EGS). EGS technology allows for electricity generation even in areas lacking natural hot water reservoirs. Fervo Energy is characterized as a pure-play EGS company with a clear path to commercialization and cost reduction, though it carries higher execution risks.
The growing interest in geothermal energy is driven by the demand for reliable, clean power from artificial intelligence data centers. These centers require electricity 24/7, a need that geothermal energy, unlike solar and wind, can consistently meet. The U.S. government also supports the sector, with Ormat having received approximately $35 million from the Department of Energy for two projects.
Ormat, founded in Israel and also traded on the Tel Aviv Stock Exchange, operates numerous power plants globally and sells electricity under long-term contracts. For investors, it offers relatively stable revenues while providing exposure to emerging geothermal technologies. The company also has an energy storage division, operating battery facilities in the U.S. that provide grid flexibility services, diversifying its income streams.
The recommendation comes after a period of volatility for Ormat's stock, which has traded near the lower end of its 52-week range. Market sentiment has been divided, with some investment firms recently lowering their ratings or price targets, while others have raised them. Morgan Stanley's initiation of coverage places it amidst this mixed market view.