On Friday, CFRA made a significant adjustment to its outlook on Neste Oyj, a Finnish oil refining and marketing company. The firm's analyst lowered the stock's rating from Buy to Hold and reduced the price target to €23 from the previous €32. This decision comes after Neste's first-quarter results for 2024 significantly missed market expectations, with a roughly 30% shortfall compared to consensus estimates.
Neste reported a year-over-year decline of 54% in comparable earnings per share (EPS) to €0.33 for Q1 2024. This was primarily attributed to a substantial drop in the renewable margin to $562 per ton, which is a 41% decrease from the previous year and below the company's 2024 guidance range of $600-800 per ton.
The analyst pointed to several factors for the decline, including the expiration of a high-priced annual term contract, falling prices for Renewable Identification Number (RIN) credits, and a lower margin from the Martinez plant, which operated below 50% utilization.
Additionally, the comparable EBITDA of Neste's Oil Products segment fell by 29% year-over-year to €278 million, due to a 16% reduction in sales volume. In light of these results, CFRA has adjusted its EPS forecasts for Neste, slashing the 2024 EPS prediction to €1.95 from €2.45 and the 2025 EPS estimate to €2.30 from €2.60.
The downgrade reflects concerns over multiple unplanned plant disruptions and the impact these have had on the company's financial performance. CFRA's revised target price is based on a 2025 P/E ratio of 10x, which is below the peer average of 11x. The analyst indicated that the weak renewable margins in biofuels have increased Neste's reliance on the premium for sustainable aviation fuel (SAF) and the success of ramping up SAF production in Singapore, which has experienced a challenging start.
InvestingPro Insights
As investors digest the CFRA's revised outlook on Neste Oyj, real-time data from InvestingPro provides additional context to the company's financial health. Neste Oyj's market capitalization stands at $18.26 billion, with a P/E ratio of 12.61, indicating the stock's earnings are priced lower than the industry average. The company's price to book ratio, as of the last twelve months leading up to Q1 2024, is 2.3, which may suggest that the stock is reasonably valued relative to its net assets.
For those considering the stock's recent performance, an InvestingPro Tip notes that Neste Oyj's stock has taken a significant hit over the last week, with a one-week price total return of -11.82%. Additionally, the company has been trading near its 52-week low, which could present a potential entry point for value investors. Another InvestingPro Tip highlights that despite weak gross profit margins recently reported, Neste Oyj has maintained dividend payments for 19 consecutive years, showcasing a commitment to returning value to shareholders. The current dividend yield stands at an attractive 4.24%.
For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available on Neste Oyj, providing deeper insights into the company's performance and prospects. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable tips and make more informed investment decisions.
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