On Tuesday, JPMorgan (NYSE:JPM) shifted its stance on OMV AG (OMV:AV) (OTC: OMVKY), raising the stock from a Neutral to an Overweight rating, while also increasing the price target from EUR43.00 to EUR46.00.
The adjustment follows a period of moderate performance by OMV shares year-to-date and over the past two to three years, with the latter showing more than a 10% decline when compared to the SXEP index.
The firm's analyst highlighted the strength of OMV's integrated portfolio, particularly its above-average exposure to petrochemicals (petchems), which has been a challenge in terms of earnings per share (EPS) over the last 18 months.
However, recent discussions suggest an easing of the downcycle, prompting the upgrade and leading JPMorgan to favor OMV as a midcap stock, citing its total shareholder return (TSR) resilience.
OMV's financial outlook appears robust, with the company expected to cover its dividend distributions through 2025/26 based on forward all-in free cash flow (FCF) scenarios.
JPMorgan anticipates a nearly flat year-over-year dividend per share (DPS) for the fiscal year 2024, payable in 2025, at €4.95 per share. This dividend yield of 12.4% is approximately 10% higher than the consensus expectations, which are currently around €4.50 per share.
Additionally, the analyst noted that OMV's 2025 earnings per share (EPS) consensus downside is only 5% at forward strips, compared to an average of around 10% for the sector and 12% for Repsol (OTC:REPYY) (REP).
Ongoing negotiations with ADNOC regarding a potential chemical combination of Borouge and Borealis were also mentioned, where a value-driven approach from OMV is anticipated, along with a convincing synergy proposition being crucial for the deal's success.
In other recent news, OMV AG has seen a shift in analyst ratings and expectations for its financial performance. UBS upgraded the company's stock from Neutral to Buy, setting a new price target at €45.00, up from the previous €41.00.
This upgrade is in response to expected improvements in OMV's chemical sector, with projected earnings growth of over 30% per annum until 2026. Additionally, UBS highlighted the stock's approximately 12.3% distribution yield, one of the sector's highest, and its defensive qualities, beneficial during economic downturns.
In contrast, CFRA upgraded OMV AG's stock to 'Hold' from 'Sell' due to a recent 20% drop in share price, influenced by potential disruption in gas supply from Gazprom (MCX:GAZP).
OMV's Q2 2024 earnings before interest and taxes (EBIT) were reported at EUR1.23 billion, a 4% increase year-over-year but a 17% decrease from the previous quarter, in line with consensus estimates.
The company revised its 2024 outlook for polyolefins, expecting polyethylene margins to exceed USD400 per ton, and adjusted refinery utilization expectations downward to 90%.
CFRA maintained other guidance metrics, anticipating refining margins to be USD8 per barrel and hydrocarbon production to be between 330,000 and 350,000 barrels of oil equivalent per day. The firm forecasts earnings per share (EPS) of EUR7.10 for 2024 and EUR7.20 for 2025 for OMV. These are recent developments shaping the company's future.
InvestingPro Insights
As JPMorgan upgrades OMV AG (OMV:AV) (OTC: OMVKY) to an Overweight rating with a heightened price target, real-time data and InvestingPro Tips provide additional context for investors considering the stock. OMV AG's market capitalization stands at a solid $13.37 billion, reflecting its substantial presence in the industry. The company's P/E ratio, a key indicator of its valuation, is attractively low at 7.73, with a slight increase to 7.96 when adjusted for the last twelve months as of Q2 2024. This suggests that the stock may be undervalued relative to its earnings. Moreover, OMV AG boasts a high dividend yield of 9.21%, significantly rewarding shareholders and exceeding the average yield in the sector.
InvestingPro Tips further underscore the company's financial strength and stability. OMV AG has a commendable track record of raising its dividend for 3 consecutive years and has maintained dividend payments for an impressive 30 consecutive years. Additionally, the company operates with a moderate level of debt, which is a positive sign for risk-averse investors. It's also notable that OMV AG's stock generally trades with low price volatility, offering a potentially stable investment option.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips on OMV AG, providing deeper insights that could guide investment decisions. With the stock trading near its 52-week low, potential investors have an opportunity to consider its current valuation and future prospects. Investors can access further tips on OMV AG by visiting https://www.investing.com/pro/OMVKY.
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