On Monday, KeyBanc maintained its Sector Weight rating on shares of LyondellBasell Industries (NYSE: NYSE:LYB), with no change to the previous rating. The stance comes amid a backdrop of continuing soft demand, particularly in durable goods. Despite the challenging market conditions, LyondellBasell's management remains optimistic that rate cuts could potentially spur a recovery in 2025.
The company's management has not provided a substantial update on polyethylene (PE) prices for the fourth quarter, as October contract negotiations are still in progress. They hope to achieve at least part of their proposed $0.03 per pound price increase. KeyBanc, however, anticipates a decline of at least $0.03 per pound is more probable. October did witness the highest PE volume of the year, but this is viewed as an overflow from a weaker September rather than an indication of a fundamental change in demand.
The analyst noted ongoing softness in the intermediates and derivatives (I&D) segment, worsened by poor demand for durables and shrinking margins for methyl tert-butyl ether (MTBE). MTBE spreads are seen as particularly weak this year. Additionally, LyondellBasell is conducting a strategic review in Europe, with a decision expected sometime in 2025, although not in the early months.
KeyBanc's analysis suggests that while the company's efforts to adjust its operational scale to market conditions are appropriate, it may take several years to return to mid-cycle performance levels. Given the current state of structural oversupply in the market, the firm perceives that there are higher risk/reward opportunities available elsewhere in the chemical sector.
LyondellBasell's stock is currently trading at a multiple that KeyBanc considers fair, at 4.9 times mid-cycle earnings before interest, taxes, depreciation, and amortization (EBITDA). The firm's reiterated Sector Weight rating reflects this valuation and the broader industry challenges faced by the company.
In other recent news, LyondellBasell Industries has been subject to several adjustments from financial analysts. Citi analyst Pat Cunningham revised the stock price target for the chemical giant to $92 from the previous $100, maintaining a neutral stance. This adjustment followed insights from LyondellBasell's recent earnings call, which highlighted a decline in EBITDA within the Oxyfuels and Refining segments. Jefferies also adjusted its stance on LyondellBasell shares, reducing the price target to $96 from the previous $101, while maintaining a hold rating.
Despite challenging market conditions, LyondellBasell reported third-quarter earnings per share of $1.88 and an EBITDA of $1.2 billion. The company generated $670 million from operations, with the Olefins and Polyolefins - Americas segment reporting a 13% sequential EBITDA increase. However, the refining segment experienced a $23 million EBITDA loss.
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 company targets unlocking at least $600 million in annual EBITDA by the end of 2024, aiming for $1 billion by the end of 2025.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on LyondellBasell's financial position and market performance. The company's market capitalization stands at $27.41 billion, with a P/E ratio of 12.88, indicating a relatively low valuation compared to earnings. This aligns with KeyBanc's assessment of fair valuation.
LyondellBasell's dividend yield of 6.19% is particularly noteworthy, especially given the 7.2% dividend growth over the last twelve months. This could be attractive to income-focused investors, despite the challenging market conditions described in the article.
InvestingPro Tips highlight that LyondellBasell's dividend payments have been consistent for 11 consecutive years, underscoring the company's commitment to shareholder returns even in difficult times. Additionally, the stock is trading near its 52-week low, with the current price at 79.34% of its 52-week high, potentially presenting a value opportunity for long-term investors.
These insights complement the article's discussion on LyondellBasell's operational challenges and market positioning. InvestingPro offers 15 additional tips for LyondellBasell, providing a more comprehensive analysis for investors considering the stock.
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