On Wednesday, Citi downgraded YPF S.A. (NYSE:YPF) shares from Buy to Neutral, adjusting the price target to $66 from the previous $88. The revision comes after a reassessment of Argentina's credit default swap (CDS) spread and the average cost of debt. The CDS spread has seen a decrease from approximately 900 basis points to around 750 basis points, and the cost of debt has also fallen from 8.4% to 7.5%.
Citi updated its valuation on YPF S.A., taking into account the current market prices of its stake in Metrogas and increasing the valuation of other assets including Profertil, Mega, among others.
The firm also considered the de-risking of additional drilling campaigns, which led to an increase in the target price for YPF to $44 per American Depositary Receipt (ADR) from $33. Despite this increase, the stock was downgraded to Neutral with a High Risk designation due to limited potential for share price growth.
The reassessment by Citi also affected other companies. The price target for PAM was raised to $88 per ADR, up from $75, following a mark-to-market evaluation of its stakes in publicly listed businesses. Additionally, Vista's target price was increased to $66.00 per share from $63.00, reflecting the lower country risk and cost of debt assumptions.
Citi's updated analysis reflects the impact of Argentina's improving credit conditions on the financial modeling of these companies. The firm's adjustments to their price targets and ratings are based on the latest available market data and financial metrics.
In other recent news, Argentine energy company, YPF S.A., reported robust growth in its Q3 2024 financial results. Earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 47% year-on-year to nearly $1.4 billion, while net income almost tripled from the previous quarter to around $1.5 billion.
Revenues reached $5.3 billion, marking a 7% sequential and 18% year-on-year increase. Despite a 9% year-over-year decline in overall fuel sales volumes, the company's shale oil production increased by 36%, accounting for nearly half of the total output.
YPF also disclosed strategic investments of $1.4 billion, primarily focused on upstream shale oil activities. The company issued a $540 million international bond, maintaining effective liquidity management. However, it noted a negative free cash flow of $173 million, influenced by higher debt servicing and crude oil purchases.
Looking ahead, YPF plans for neutral cash flow in 2025, transitioning to positive cash flow by 2026. The company's capital expenditures will focus on non-conventional assets, particularly in Vaca Muerta. YPF is also in negotiations for 25 areas in Vaca Muerta, with approvals expected by early 2024. These recent developments underscore YPF's commitment to bolster its position in the energy market and its focus on growth and efficiency improvements.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on YPF's financial performance and market position. The company's market capitalization stands at $17.41 billion, with a P/E ratio of 23.06. YPF has demonstrated impressive revenue growth, with a 269.29% increase in the last twelve months as of Q3 2024. This aligns with the article's focus on the company's financial reassessment and valuation adjustments.
InvestingPro Tips highlight YPF's strong recent performance, noting significant returns over various time frames. The stock has seen a 56.06% price return over the past month and an 85.41% return over the last three months. These figures support Citi's decision to raise the target price for YPF, even as they downgraded the stock to Neutral due to limited further upside potential.
It's worth noting that YPF is trading near its 52-week high, with the current price at 94.63% of that level. This information aligns with Citi's view on the limited potential for further share price growth. For investors seeking more comprehensive analysis, InvestingPro offers 14 additional tips for YPF, providing a deeper understanding of the company's financial health and market position.
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