On Thursday, CFRA lowered its rating on Tenaris S.A. (TEN:IM) (NYSE: TS) from Buy to Hold and reduced the price target to €15 from €21. The adjustment comes in response to a challenging market environment, particularly in the Americas where the company faces weak prices for Oil Country Tubular Goods (OCTG).
The firm's revised price target is based on a 2025 Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) multiple of 5 times, which aligns with the average for Tenaris's industry peers. Alongside the downgrade, CFRA also cut its earnings per share (EPS) forecasts for Tenaris for the years 2024 and 2025 to $1.85 (from $2.10) and $1.80 (from $2.20), respectively.
The downgrade was influenced by Tenaris's second-quarter adjusted EBITDA of $821 million, which represented a 42% decrease year-over-year and a 17% drop quarter-over-quarter. Although these figures met the consensus estimates, they fell short of CFRA's expectations. The lower performance was attributed to weak OCTG pricing in the United States, resulting from increased imports, high inventory levels, and sluggish drilling activity. This affected the sales in Tenaris's Americas segment.
On a positive note, Tenaris reported a 32% year-over-year increase in sales in Asia and the Middle East and Africa (MEA) regions, driven by strong international and offshore projects. However, looking ahead to the third quarter of 2024, Tenaris anticipates a downward trend in sales and margins due to further declines in OCTG prices in the Americas. The company also noted that several mills are scheduled for maintenance during this period.
The CFRA report concluded by stating that the downgrade reflects the current market conditions and the limited visibility for a significant recovery in OCTG pricing in the Americas during the second half of 2024. This is compounded by economic uncertainties in key markets like Argentina and Mexico, which further cloud the outlook for Tenaris.
In other recent news, Tenaris S.A. has been the focus of several analyst reports. CFRA downgraded the company's rating from Buy to Hold and lowered its price target to €15 from €21, citing a challenging market environment, particularly in the Americas. The firm also reduced its earnings per share forecasts for 2024 and 2025. This decision came after Tenaris's second-quarter adjusted EBITDA of $821 million, a 42% decrease year-over-year, fell short of CFRA's expectations due to weak Oil Country Tubular Goods (OCTG) pricing.
Simultaneously, Piper Sandler maintained its overweight rating on Tenaris but lowered the price target to $43.00 from $49.00. The revised forecast is based on an estimated $3,716 million EBITDA in 2025 and a net debt of $1,054 million reported in the first quarter of 2024. The firm pointed out risks such as fluctuations in the oil market, potential capital restraint by Exploration and Production companies, OCTG inventory levels, and potential material cost inflation.
InvestingPro Insights
In light of CFRA's recent downgrade of Tenaris S.A., real-time data from InvestingPro provides additional context for investors considering the company's current valuation and performance. Tenaris's adjusted market capitalization stands at $16.03 billion, with a notably low price-to-earnings (P/E) ratio of 6.06, suggesting the stock may be undervalued relative to its earnings. This is further supported by an even lower forward P/E ratio for the last twelve months as of Q1 2024, at 4.54. Additionally, the company boasts a robust return on assets of 17.81% for the same period, indicating efficient management of its assets to generate profits.
InvestingPro Tips highlight the PEG ratio of 0.43 as of Q1 2024, which might appeal to growth-oriented investors, as it suggests the stock is potentially undervalued based on expected growth rates. Moreover, Tenaris's dividend yield as of mid-February 2024 is an attractive 5.03%, coupled with a substantial dividend growth of 135.29% in the last twelve months as of Q1 2024, which could catch the eye of income-focused investors.
For those seeking a deeper analysis, InvestingPro offers additional tips on Tenaris and other companies in the industry. Currently, there are 15 more InvestingPro Tips available that could provide investors with a more comprehensive understanding of Tenaris's investment profile.
While the downgrade reflects near-term headwinds, these metrics suggest that Tenaris may have underlying strengths that could be of interest to certain investors, particularly those looking for value or income opportunities in the current market environment.
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