On Monday, Citi analyst Pat Cunningham adjusted the stock price target for LyondellBasell Industries (NYSE:LYB), a major player in the chemicals sector, to $92 from the previous target of $100. Despite this change, the firm has kept its Neutral rating on the stock.
The revision follows insights gained from the company's recent earnings call last Friday. According to the analyst, three key points emerged from the discussion. Firstly, there was a notable decline in EBITDA within the Oxyfuels and Refining segments, which surpassed the overall sequential profitability downturn for the group.
This was partly due to the Polyolefins (PO) operating rates being hampered by elevated US propylene costs, which restricted exports to Asia. The expected operating rates for the fourth quarter of 2024 are anticipated to hover around 75%, influenced by the Bayport site's turnaround that commenced in October.
Secondly, the analyst highlighted that North American Polyethylene (NA PE) orders in October reached their highest level of the year, spurred by more stable crude prices, which in turn bolstered both domestic and export demand.
This uptick was also attributed to a shift in order timing from September to October. However, expectations for November and December are tempered by typical seasonal trends that could affect order volumes.
Lastly, while LyondellBasell did not provide specific updates on its restructuring plans, the company did mention that the European assets scheduled for decommissioning represent approximately 2 to 2.5 million tons of ethylene capacity.
Taking these planned exits into account, along with refinery modifications to accommodate recycled renewable products, the proportion of cost-advantaged operations in LyondellBasell's portfolio is projected to increase from 60% to 70%.
The analyst's commentary and the revised price target reflect a cautious but observant stance on the company's financial outlook and operational adjustments as it navigates market challenges and strategic restructuring efforts.
In other recent news, LyondellBasell Industries has reported its third-quarter financial results, revealing earnings per share of $1.88 and an EBITDA of $1.2 billion. Despite challenging market conditions, the company generated $670 million from operations. Jefferies has subsequently adjusted its stance on LyondellBasell shares, reducing the price target to $96 from the previous $101, while maintaining a Hold rating.
These recent developments come amidst concerns regarding margin compression, influenced by an uptick in ethane costs and a decrease in crack spreads. However, LyondellBasell's strategic initiatives, including the construction of the MoReTec-1 recycling facility and the planned closure of the Houston refinery, continue as planned.
The Olefins and Polyolefins - Americas segment reported a 13% sequential EBITDA increase, while the refining segment experienced a $23 million EBITDA loss. Despite these challenges, LyondellBasell targets unlocking at least $600 million in annual EBITDA by the end of 2024, aiming for $1 billion by the end of 2025.
These recent developments underscore LyondellBasell's strategic focus on disciplined capital allocation and optimizing operations to ensure long-term value.
InvestingPro Insights
LyondellBasell's financial metrics and market position offer additional context to the analyst's observations. The company's current P/E ratio of 13.14 suggests a relatively modest valuation compared to historical industry averages. This aligns with the analyst's Neutral rating, indicating a balanced view of the company's prospects.
LyondellBasell's dividend yield stands at an attractive 6.19%, with a dividend growth rate of 7.2% over the last twelve months. This robust dividend policy could be appealing to income-focused investors, especially in light of the company's ongoing restructuring efforts aimed at improving cost advantages.
An InvestingPro Tip highlights that LyondellBasell's dividend payments have been consistent, which may provide some reassurance to shareholders during this period of operational adjustments. Another InvestingPro Tip notes that despite recent challenges, the company maintains a high return on invested capital, potentially indicating efficient use of resources even as it navigates market headwinds.
These insights complement the analyst's report, offering a broader perspective on LyondellBasell's financial health and strategic positioning. For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for LyondellBasell, providing deeper insights into the company's performance and outlook.
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