Investing.com -- JPMorgan cut Cemex to Neutral from Overweight in a note Tuesday, citing a lack of upcoming catalysts and softer-than-expected third-quarter results.
Analysts at the bank noted that while Cemex's valuation on an EV/EBITDA basis looks attractive, the company's free cash flow (FCF) generation and near-term earnings outlook present challenges.
"We see no significant fundamental catalysts until at least mid-February," JPMorgan wrote, adding that fourth-quarter results are likely to remain subdued with limited visibility into 2024.
The analysts also highlighted that investor hopes for growing dividends or meaningful buybacks could be frustrated.
JPMorgan also believes FCF generation is not yet sufficient to offer both a growing dividend and reasonable buybacks, which have become top-of-mind for investors.
They estimate Cemex will generate $300-350 million in FCF next year, equivalent to a 3.8-4.4% yield, after accounting for growth capital expenditures and other expenses.
With limited cash available after dividends, the analysts added, "There seems to be low interest" from Cemex in executing on its $500 million buyback program, even though leverage could end the year at 1.7x.
JPMorgan expressed additional concern that Cemex may be near the peak of its earnings cycle, stating that next year's estimates could face downside, particularly for Mexico and the US, which together account for 73% of the company's EBITDA.
The bank also noted that any contribution to EBITDA growth from new capital expenditures would likely be minimal in the early years of deployment.
While the company's strategic focus on its core markets of Mexico, the US, and Europe is viewed positively over the long term, JPMorgan believes the near-term outlook is limited.