On Friday, JPMorgan (NYSE:JPM) adjusted its outlook on Tenaris S.A. (NYSE: TS) shares, reducing the price target from $43.00 to $35.00 while maintaining an Overweight rating.
The revision follows a decrease in the firm's EBITDA forecasts for the third and fourth quarters of 2024, with the third-quarter estimate dropping to $565 million from $604 million and the fourth-quarter figure declining to $580 million from $704 million.
Consequently, the full-year 2024 EBITDA estimate is now set at $2.94 billion, down from $3.10 billion, slightly below the consensus of $3.09 billion.
The analyst noted that despite the lowered EBITDA expectations, Tenaris is still projected to generate strong free cash flow (FCF) in 2024, with an estimated $2.34 billion, yielding 12.5%.
For 2025, the EBITDA forecast stands at approximately $2.51 billion, which is around 20% below the market consensus. Nevertheless, Tenaris is expected to sustain robust FCF generation, with an anticipated $1.81 billion, translating to a 9.7% yield.
The report highlighted that the next significant event for Tenaris's stock would be the stabilization of U.S. pricing and a rebound in gas-directed activities in 2025.
Based on the updated estimates, Tenaris is trading at multiples of 5.1 times and 5.9 times the 2024 and 2025 EBITDA projections, respectively. This is below the historical average multiple of approximately 8.8 times.
Additionally, Tenaris's net cash balance is forecasted to increase significantly, reaching $3.74 billion at the end of 2024 and $5.17 billion by the end of 2025.
This financial position may provide the company with more flexibility for value-added cash uses, including the potential extension of its buyback program, which is expected to be discussed at the Board of Directors meeting in November. The price target adjustment to $35.00 is based on a normalized free cash flow analysis, reflecting the reduced EBITDA forecast.
In other recent news, Tenaris S.A. experienced a decline in sales and earnings in the second quarter of 2024. The company reported sales of $3.3 billion, an 18% decrease from the previous year, and a 3% sequential decline.
Furthermore, Tenaris' EBITDA fell to $650 million, a 34% sequential decrease, largely due to lower selling prices and an extraordinary litigation provision.
Despite the downturn, Tenaris managed to generate a substantial free cash flow of $774 million after dividends and share buybacks. The company's outlook for the latter half of the year anticipates a potential 10-15% decline in sales volume, primarily due to reduced demand in key markets, although some regions are expected to see increased activity.
JPMorgan has adjusted its outlook on Tenaris, reducing the price target from $43.00 to $35.00 while maintaining an Overweight rating. This adjustment follows a decrease in the firm's EBITDA forecasts for the third and fourth quarters of 2024. Despite lowered EBITDA expectations, Tenaris is still projected to generate strong free cash flow in the coming years.
Finally, Tenaris's net cash balance is forecasted to increase significantly, reaching $3.74 billion at the end of 2024 and $5.17 billion by the end of 2025.
This financial position may provide the company with more flexibility for value-added cash uses, including the potential extension of its buyback program. All these are recent developments within the company.
InvestingPro Insights
Recent data from InvestingPro provides a comprehensive snapshot of Tenaris S.A.’s financial health and market performance. With a market capitalization of $16.2 billion, Tenaris presents an attractive P/E ratio of 6.14, signaling a potentially undervalued stock relative to earnings. The adjusted P/E ratio for the last twelve months as of Q2 2024 further supports this view, standing at 5.73. Additionally, Tenaris’s dividend yield as of mid-May 2024 is a robust 5.56%, coupled with a notable dividend growth of 17.65% in the same period, which could appeal to income-focused investors.
InvestingPro Tips suggest that Tenaris’s price/book ratio of 0.97 indicates that the stock might be trading at nearly its book value, potentially offering a margin of safety for value investors. The company's strong return on assets of 13.83% demonstrates efficient management of its assets to generate profits.
For those considering investment opportunities, InvestingPro offers 7 additional tips on Tenaris, providing deeper insights into the company's financials and market performance. These tips, along with the real-time data, could be invaluable for investors looking to make informed decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.