On Friday, CFRA downgraded shares of Neste Oyj (NESTE:FH) (OTC: NTOIY) from a Strong Buy to a Hold, significantly reducing the price target to €30.00 from the previous €55.00. The adjustment reflects a reassessment of the company's near-term financial outlook in light of expected margin pressures and operational challenges.
Neste Oyj, which operates in the renewable fuels industry, has been facing a turbulent market. The company has guided a substantial decrease in its renewable products margin to $600-800 per ton for 2024, a drop from the $863 per ton seen in 2023. This projection suggests an environment of increased market volatility, a decline in U.S. RIN credits, and a squeeze on margins from the company's new plants.
The downgrade coincides with the release of Neste's fourth-quarter earnings for 2023. The reported earnings per share (EPS) of €0.66 represented a year-over-year decline of 21% and a quarter-over-quarter drop of 25%. The company's comparable EBITDA for the quarter was €797 million, down 11% from the previous year and 24% from the previous quarter. These figures were in line with expectations despite being impacted by a lower refining margin of $18.9 per barrel and increased fixed costs.
Operational challenges were also highlighted, with the utilization rate at Neste's Singapore facility reaching the anticipated 75% level in the fourth quarter of 2023. However, the Martinez plant's utilization rate remained below 50% due to a fire outbreak at the end of the year.
Looking ahead, CFRA has adjusted its 2024 EPS forecast for Neste to €2.35, down from €2.90, and set a 2025 EPS target of €2.50. The new price target of €30.00 is based on a 2025 price-to-earnings (P/E) ratio of 12 times, aligning with the average of Neste's peers. This recalibration by CFRA aligns with the company's near-term challenges and the uncertain start of its new plant operations.
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