On Thursday, UBS upgraded Repsol SA (OTC:REPYY) stock from Neutral to Buy, setting a new price target of EUR13.00, up from the previous EUR11.50. The upgrade reflects UBS's positive outlook on the company's prospects for the year 2025, a view that has not yet been priced into the stock, according to the firm. This aligns with InvestingPro data showing the stock is currently undervalued, with two analysts recently revising their earnings estimates upward for the upcoming period.
Repsol's shares have experienced a 12% decline over the past six months, a trend that is in line with the overall sector. Despite trading at an attractive P/E ratio of 6.8x and maintaining a solid dividend history of 34 consecutive years, the stock has shown relatively low price volatility.
UBS sees a turning point for the company, driven by a rebound in refining margins, which are a critical factor for Repsol's stock performance. The firm anticipates a more favorable balance in 2025 due to recent announcements of further refinery closures and project delays.
Additionally, UBS expects stable oil prices and an increase in US gas prices, which could lead to higher than anticipated earnings and shareholder returns for Repsol. The firm has increased its 2025 earnings per share (EPS) forecasts for Repsol by 17%, positioning its estimates 8% above the consensus. This gap could widen to nearly 20% if higher gas prices, as indicated by the current forward curve, materialize.
The analyst's comments highlight the potential for upside risks to consensus on Repsol's earnings and shareholder returns. This positive reassessment by UBS suggests the firm believes Repsol is well-positioned to benefit from the current industry dynamics and macroeconomic factors influencing the energy sector.
In other recent news, Repsol S.A. has reported its Q3 results, revealing a period of strategic adjustments and financial resilience despite notable challenges. The company's adjusted income for the quarter was €558 million, marking a 49% decrease from the same period last year, mainly due to lower refining margins and production interruptions in Libya. However, Repsol's cash flow from operations improved, reaching €1.5 billion.
Net debt increased to €5.5 billion, attributed to dividend payments and share buybacks. The company's refining margins averaged $4 per barrel, a significant drop from $13.6 the previous year. The Low Carbon division reported a loss of €7 million due to lower power prices in Spain, while the renewable capacity reached 3.2 gigawatts, with a target of 4 gigawatts by year-end.
Repsol plans to make strategic adjustments in North America and Brazil and drill 15 wells in Libya. The company's updated 2024 outlook anticipates production at the lower end of 570,000 to 600,000 barrels per day, with cash flow from operations revised down to €6 billion. These are recent developments that highlight Repsol's strategic focus amid challenges.
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