On Monday, Methanex (NASDAQ:MEOH) Corporation (NASDAQ:MEOH) retained its Sector Outperform rating and a price target of $60.00, following the announcement of its acquisition of OCI's methanol business. The deal, valued at $2.05 billion, is expected to increase Methanex's global production capacity by a minimum of 20%.
The transaction details include a payment of $1.15 billion in cash, the issuance of approximately 9.9 million shares at an estimated price of $45 per share, amounting to $450 million in equity, and the assumption of $450 million in debt and leases. After the transaction's completion, Methanex will have around 77 million shares outstanding, with OCI becoming a 13% shareholder in the company.
Methanex plans to finance the acquisition through available cash and additional debt. The acquisition is projected to be immediately accretive to Methanex's cash flow. The initial deal multiple is set at 7.5 times, with expectations that it might decrease to around 6.5 times over time.
The integration of OCI's methanol business is a strategic move for Methanex, aiming to solidify its position in the global market. The transaction is structured to enhance Methanex's production capabilities significantly, providing a substantial boost to the company's operational scale.
In other recent news, Methanex Corporation has experienced several significant developments. The company has been the subject of analysis by Scotiabank and RBC Capital. Scotiabank reiterated its Sector Outperform rating on Methanex shares, maintaining a steady price target of $60.00.
The firm noted a slight uptick in methanol prices and projected an EBITDA of around $1,007 million for Methanex, surpassing the consensus estimate of $960 million. Meanwhile, RBC Capital maintained its Sector Perform rating for Methanex with a steady price target of $55.00, considering the potential risks of a global economic downturn or a decline in energy prices.
Scotiabank also highlighted Methanex's potential free cash flow, estimating it at $6 per share for the year 2025. The firm's analysis suggests a potential increase in shareholder value as Methanex prepares to redirect the majority of its free cash flow towards shareholder returns, possibly through buybacks.
Further, Methanex announced a temporary shutdown of its Egypt methanol production facility due to a reduced gas supply and is currently engaging with its partner and gas supplier to restore operations.
InvestingPro Insights
As Methanex Corporation (NASDAQ:MEOH) embarks on its strategic acquisition of OCI's methanol business, InvestingPro data and tips provide a glimpse into the company's current financial health and analyst sentiment. With a market capitalization of $2.7 billion and a P/E ratio standing at 18.65, Methanex appears to be valued at a level that reflects its steady earnings. Notably, the company's valuation implies a strong free cash flow yield, which could signal a positive outlook for investors seeking cash-generating investments.
An InvestingPro Tip highlights that four analysts have recently revised their earnings upwards for the upcoming period, suggesting confidence in Methanex's financial prospects post-acquisition. Additionally, despite a recent dip in stock price over the last week, Methanex has shown resilience by maintaining dividend payments for 23 consecutive years, with a current dividend yield of 1.74%. This track record of consistent dividends may appeal to income-focused investors.
For those interested in further insights, InvestingPro offers additional tips on Methanex, which can be explored for a deeper understanding of the company's performance and outlook. These insights, combined with the upcoming increase in production capacity, position Methanex as a company worth watching in the methanol industry.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.