On Friday, Piper Sandler adjusted its outlook on LyondellBasell Industries (NYSE:NYSE:LYB) shares, reducing the price target to $112 from the previous $117. The firm maintained its Overweight rating on the stock. The revision follows the company's third-quarter earnings release and updated fourth-quarter guidance, alongside recent checks within the industry.
The change in the price target is accompanied by a slight modification in the valuation multiple, now set at 8.3 times the expected 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), a decrease from the previous 8.5 times.
This adjustment is attributed to a recalibration of the expected midcycle earnings level, which, despite a reduction in forecasted earnings, is believed to be more accurately represented after the revision.
Piper Sandler's analysis suggests a more gradual recovery for LyondellBasell's major products, largely due to a weaker-than-anticipated rebound in Europe and Asia. However, the company's robust domestic and export sales mix, coupled with the advantage of low-cost feedstock in the United States, is expected to continue driving strong earnings within the country.
The firm also highlighted the competitive edge provided by low costs, which enhances the appeal of U.S. exports, particularly for ethylene derivatives. This dynamic is projected to keep the domestic market in balance and sustain price levels above what they might otherwise be without these cost advantages.
In other recent news, LyondellBasell Industries reported third-quarter earnings per share of $1.88 and an EBITDA of $1.2 billion, despite challenging market conditions. BofA Securities lowered its fourth-quarter EBITDA estimate for the company to $954 million, down from $1,082 million, leading to a reduction in the price target to $96 from the previous $98. The firm's projections indicate a potential uptick in the polyethylene markets and some recovery in the Intermediates & Derivatives segment.
Citi, KeyBanc, and Jefferies also adjusted their stances, with Citi reducing the stock price target to $92, KeyBanc maintaining its Sector Weight rating, and Jefferies lowering the price target to $96. These adjustments are based on factors such as ongoing softness in the intermediates and derivatives segment, weak demand for durables, and a cautious outlook for the company's financial performance.
Despite these challenges, LyondellBasell's strategic initiatives, including the construction of the MoReTec-1 recycling facility and the planned closure of the Houston refinery, continue as planned.
The company targets unlocking at least $600 million in annual EBITDA by the end of 2024, aiming for $1 billion by the end of 2025. These recent developments reflect LyondellBasell's strategic focus on disciplined capital allocation and optimizing operations to ensure long-term value.
InvestingPro Insights
LyondellBasell Industries' financial metrics and market performance offer additional context to Piper Sandler's analysis. The company's P/E ratio of 13.12 suggests a relatively modest valuation, which aligns with the firm's maintained Overweight rating despite the reduced price target. LyondellBasell's impressive dividend yield of 6.14% and a dividend growth rate of 7.2% over the last twelve months underscore its appeal to income-focused investors, potentially offsetting some concerns about the gradual recovery in major products.
InvestingPro Tips highlight that LyondellBasell has maintained dividend payments for 13 consecutive years, reinforcing its commitment to shareholder returns even in challenging market conditions. Additionally, the company's high return on invested capital suggests efficient use of funds, which could support its competitive position in the U.S. market as noted by Piper Sandler.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for LyondellBasell, providing deeper insights into the company's financial health and market position.
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