Prysmian's Strategic Resilience in the U.S. Copper Tariff Regime: A Case for Immediate Investment

The U.S. Section 232 investigation into copper imports has thrust the industry into a new era of trade volatility, but for Prysmian Group (PRY.MI), this turbulence is an opportunity. As tariffs on imported copper hover near 50%, the company's vertically integrated supply chain—rooted in domestic sourcing, strategic acquisitions, and alignment with U.S. infrastructure priorities—has positioned it as a structural winner. This analysis reveals why investors should capitalize on Prysmian's undervalued stock now.

The Unseen Advantage: Vertical Integration as a Moat

Prysmian's dominance begins with its control over copper's journey from mine to market. The company sources 90% of its U.S. copper domestically, primarily from Arizona's Freeport mine, and processes it through its Texas-based copper rod mill. This vertical integration bypasses the 50% tariff on imported copper, a stark contrast to competitors like Southwire and General Cable, which rely on imported raw materials.

The result? Prysmian avoids tariff-induced cost spikes while competitors face margin erosion. Analysts at Citi estimate this setup grants Prysmian a 150 basis point margin expansion in its U.S. low-voltage business this year. Meanwhile, rivals are trapped in a vise of rising input costs and price-sensitive customers.

Encore Wire: A Strategic Acquisition Paying Dividends

Prysmian's $4.2 billion acquisition of Texas-based Encore Wire in 2024 was a masterstroke. The deal boosted its U.S. market share to 25%—a commanding lead—while unlocking synergies in logistics, procurement, and distribution. Encore's proximity to Texas' copper infrastructure and its focus on low-voltage cables (critical for construction and utilities) have created €0.50 per share in annual synergies by 2026.

This scale isn't just about size; it's about resilience. While smaller competitors scramble to offset tariff costs, Prysmian leverages its economies of scale to negotiate favorable terms and stabilize pricing.

Infrastructure Tailwinds: A Shield Against Demand Volatility

The U.S. copper market faces a 16% demand contraction in 2025 due to soaring prices, but Prysmian's focus on infrastructure projects—backed by federal spending—insulates it from this slump. Its cables are integral to high-profile initiatives like the Texas Gulf Coast Energy Hub and California's Grid Resiliency Program, which are subsidized and less sensitive to price fluctuations.

Long-term contracts with utilities often include price pass-through clauses, allowing Prysmian to adjust pricing as copper costs rise. This contrasts sharply with construction-heavy competitors, whose margins shrink as projects stall.

The Competitor Conundrum: Marginal Gains, Structural Losses

Smaller players face a grim reality. Companies like Southwire and General Cable, lacking vertical integration, must absorb tariffs or risk losing customers by hiking prices. Their reliance on imported copper exposes them to record-high global prices—now at $4.50/lb due to tariff-driven shortages.

Analysts warn of margin compression across the sector, but Prysmian's moat ensures it will outperform. A recent Citi report notes: "Prysmian's integrated model isn't just an advantage—it's a survival tool in this tariff regime."

Valuation: A 20% Discount to Its Worth

Despite its strengths, Prysmian trades at a 20% discount to European peers, with an EV/EBITDA multiple of 9.5x for 2025. This undervaluation ignores its structural advantages.

Citi projects a rerating to 11x, implying a 16% upside with a €28 price target. This reflects confidence in Prysmian's ability to sustain margin expansion and capitalize on infrastructure spending for years.

Risks and Mitigations

• Demand Destruction: While construction demand is weakening, infrastructure projects are insulated by subsidies and long-term contracts.
• Tariff Exemptions: If Canadian or Chilean imports gain exemptions, competitors might partially offset costs. However, Prysmian's scale and domestic ties ensure it remains untethered from global price swings.

Investment Thesis: Buy Now, Rethink Later

Prysmian is a once-in-a-decade opportunity in an industry reshaped by trade policy. Its vertical integration, Encore synergies, and alignment with U.S. infrastructure goals create a durable moat against competitors. With shares undervalued and margin expansion accelerating, investors should act immediately.

Recommendation: Buy Prysmian (PRY.MI) with a 12-month target of €28. Monitor for tariff outcomes and infrastructure spending updates.

The U.S. copper tariffs are more than a temporary shock—they're a structural shift favoring companies with control over their supply chains. Prysmian isn't just surviving this era; it's thriving.