Market Is Missing Changes Afoot at Veolia; We're Raising Fair Value Estimate to EUR 38.5

The market is failing to appreciate the transformation that Veolia has undergone in the last several years. This transformation, most notably a greater reliance on high-quality businesses such as hazardous waste management and water technologies, prompted us to upgrade our economic moat rating to narrow from none. Veolia's new business mix should deliver steadier, higher returns over time. Perhaps more importantly, the market is also failing to appreciate the company's long-term earnings potential, as it is anchored on the 2024-27 GreenUp plan disclosed in March. However, we think the plan understates Veolia's 2027 earnings potential. At our updated EUR 38.50 fair value estimate, Veolia offers 27% upside.