On Monday, Wolfe Research adjusted its outlook on shares of LyondellBasell Industries (NYSE: LYB), reducing the price target to $91 from the previous $93, while keeping an Underperform rating on the stock. The firm noted that as of Friday, shares of LyondellBasell have seen a slight year-to-date decline compared to the S&P 500's significant gain, as well as mixed performance against other industry benchmarks.
LyondellBasell is currently trading at approximately 7.3 times the consensus next twelve months (NTM) EBITDA, which aligns closely with its five-year median of around 7.4 times. Historically, the company's Forward EV/EBITDA trading range for the middle 50% has been between 6.0 times and 7.4 times.
Wolfe Research believes that the company's valuation should be near or below the midpoint of this range due to various factors, including debates about its European assets, polypropylene (PP) market weakness, and potential long-term innovation and development profit challenges.
Despite potential advantages such as low feedstock costs, a robust U.S. polyethylene (PE) export market, and limited North American capacity additions, the firm suggests that these positive factors are already reflected in the current share price.
Looking ahead to 2025, Wolfe Research anticipates risks that could impact the company negatively, including a volatile global demand environment, increased capacity from China and the Middle East, temporary relief to European facilities from Red Sea disruptions, and the U.S. market's absorption of recent PE capacity increases.
The analysis contrasts LyondellBasell with its peer Dow, highlighting differing views on global PP challenges, European asset issues, and the intermediates portfolio. Although LyondellBasell is experiencing relative stability, the firm maintains that challenges persist in PP and intermediates sectors.
The revised $91 price target is based on a multiple of 6.5 times the firm's estimated 2025 EBITDA of $5.6 billion, discounted back at an 8% rate. This multiple is slightly below the 6.8 times average of Wolfe Research's Commodity Chemicals index.
In other recent news, LyondellBasell Industries NV (NYSE:LYB) has reported a significant improvement in its second-quarter financial performance, with a 30% increase in underlying business results compared to the previous quarter. The company generated a substantial $1.3 billion in cash from operating activities and showed a strong commitment to shareholder returns, redistributing nearly $1.8 billion through dividends and share buybacks.
Furthermore, LyondellBasell is currently undergoing a strategic review of its European assets and executing a three-pillar strategy aimed at boosting EBITDA by $3 billion by 2027.
Recent developments also include the company's aim to align operating rates with market demand, with expectations set for North American polyolefins capacity additions to slow, potentially tightening supply and demand balances. LyondellBasell's long-term strategy is focused on reshaping the business portfolio and improving profitability. The company is also planning a refinery shutdown by the end of the first quarter of 2025, as part of its strategy towards circular and low-carbon solutions.
Despite the strong performance, LyondellBasell experienced a slight decrease in volumes, particularly in the advanced polymer solutions segment due to a slight decrease in automotive production. However, the company's Value Enhancement Program is projected to contribute around $400 million to EBITDA in 2024.
Lastly, LyondellBasell recently completed the acquisition of a 35% share in the NATPET joint venture in Saudi Arabia, marking another significant step in its strategic growth plan.
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