On Tuesday, Deutsche Bank adjusted its outlook on shares of LSB Industries (NYSE:LXU), reducing the price target to $9.00 from the previous $11.00 while maintaining a Buy rating on the stock. The revision reflects anticipated changes in the company's earnings before interest, taxes, depreciation, and amortization (EBITDA).
In the third quarter, LSB Industries is expected to see a significant year-over-year increase in EBITDA, adjusted for $15 million in turnaround expenses as it undertakes a 30-day turnaround at its Pryor plant and prepares for a similar event at its Cherokee plant in the following quarter.
The expected rise in EBITDA is attributed to higher product prices and reduced costs for natural gas and other expenses. The forecast for the third quarter EBITDA is set at $16 million, which represents a 60% increase from the same period last year, although it shows a 62% decrease from the previous quarter. LSB Industries has also made progress on its two low carbon ammonia projects, which are anticipated to contribute to the company's future financial performance.
During the quarter, LSB Industries signed a five-year agreement to supply Freeport Minerals with up to 150,000 metric tons of low carbon ammonium nitrate solution (ANS) from its El Dorado, Arkansas facility starting January 1, 2025. This supply will transition to a low carbon volume upon the completion of the El Dorado carbon capture and sequestration project in the first quarter of 2026. The management confirmed that the low carbon ANS supplied to Freeport would command a premium price compared to traditional grey ANS.
The El Dorado Low-Carbon (Blue) Ammonia Project, in collaboration with Lapis Energy, is expected to commence operations in the first quarter of 2026. It is projected to reduce LSB's Scope 1 CO2 emissions by approximately 25% and generate an additional $15-$20 million in EBITDA for the company.
Moreover, the Houston Ship Channel Low Carbon Ammonia Project is on track to complete its Pre-Front End Engineering Design (Pre-FEED) study by the end of 2024 and move forward with the Front End Engineering Design (FEED) study, with a Final Investment Decision (FID) expected in the first half of 2026 and commercial operation anticipated between 2028 and 2029.
In terms of capital allocation, LSB repurchased 0.8 million shares in the second quarter and a total of 1.5 million shares in the first half of 2024. The company also repurchased $64 million of senior notes in the second quarter, totaling $97 million in the first half of the year.
Deutsche Bank has lowered its 2024 EBITDA estimate for LSB Industries by $10 million to $115 million, marking a 16% decrease. However, the firm maintains its 2025 EBITDA estimate at $140 million, a 22% increase, and its 2026 estimate at $150 million, up 7%.
In other recent news, LSB Industries has seen significant developments. The company announced the retirement of Richard Roedel as the Chairman of the Board due to health reasons, with President and CEO Mark Behrman elected to succeed him. Lynn White, a board member since 2015, has been named Lead Independent Director.
Piper Sandler adjusted its price target for LSB Industries to $9.00, maintaining an Underweight rating due to perceived negative trends in the agricultural market. This is tied to expectations of a decline in corn prices, potentially affecting fertilizer demand.
LSB Industries also announced a multiyear agreement with Freeport Minerals to supply low-carbon ammonium nitrate solutions for copper mining operations. This aligns with LSB's commitment to a low-carbon product strategy.
The company's second-quarter operating results met expectations, with an adjusted EBITDA of $41 million and earnings per share of $0.13. Despite anticipated lower production volumes in the third quarter, LSB Industries expects a rise in adjusted EBITDA due to increased selling prices and reduced costs.
InvestingPro Insights
As Deutsche Bank revises its outlook on LSB Industries, it's essential to consider the company's financial health and market performance for a comprehensive analysis. According to InvestingPro data, LSB Industries has a market capitalization of $542.17M, indicating its size within the industry. Despite the challenges, the company is trading at a high earnings multiple, with a P/E ratio of 270.69, which suggests investor optimism about future earnings growth. Moreover, LSB’s liquid assets exceed its short-term obligations, providing financial stability in covering immediate liabilities.
InvestingPro Tips reveal that LSB Industries' management has been actively buying back shares, reflecting confidence in the company's prospects. The company also boasts a high shareholder yield, which could be attractive for investors seeking companies with potential for returns through buybacks or other means of shareholder compensation. Notably, LSB Industries is expected to be profitable this year and has been profitable over the last twelve months, underscoring its capacity to generate earnings despite market fluctuations.
These insights, along with the additional 7 tips available on InvestingPro for LSB Industries, can offer investors a more nuanced understanding of the company's performance and potential. For those interested in delving deeper into the company's metrics and receiving comprehensive tips, further information can be explored at InvestingPro's dedicated page for LSB Industries.
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