On Monday (NASDAQ:MNDY), Goldman Sachs altered its stance on BASF SE (BAS:GR) (OTC: OTC:BASFY), shifting from a neutral position to a buy rating. The firm also increased its price target for the chemical company from EUR45.00 to EUR53.00. The adjustment follows a prolonged period of downward revisions by industry analysts.
According to the Goldman Sachs analyst, there is an anticipation that the negative trend in consensus revisions for BASF has bottomed out as of the fiscal year 2024. The analyst predicts that BASF will experience a revaluation following the last downgrade, as a result of a convergence of both microeconomic and macroeconomic factors moving in a favorable direction.
After the third quarter of 2024, the analyst has revised the forecast for BASF's adjusted EBITDA for FY24 upwards by approximately 5%, while expectations for FY25 and FY26 remain largely consistent with previous forecasts.
The analyst cited the "rule of three" framework, which is often used to determine the right time to invest in cyclical stocks after a downturn. BASF, according to the analyst, presents an attractive opportunity based on this framework due to its trough margins, management's acknowledgment of challenges, and emerging signs of recovery.
While not explicitly modeled in their projections, the analyst also pointed out that there is potential for additional upside from pent-up demand in downstream industries.
With the new price target of EUR53.00, Goldman Sachs suggests that there is a potential for over 20% upside in BASF's stock. This optimistic outlook is supported by the belief that the company has reached a turning point and is positioned for a positive re-rating in the near future.
In other recent news, BASF reported a stable Q3 2024 sales performance of €15.7 billion, mirroring last year's figures. The company noted a 7% volume increase, excluding precious and base metals, and a 5% rise in EBITDA before special items to €1.6 billion.
This growth was driven by strong performance in the Chemicals, Materials, and Nutrition & Care segments, while Surface Technologies faced challenges due to a dip in automotive production.
Despite these challenges, BASF maintains its EBITDA outlook for 2024, expecting to meet the lower end of the forecast range. The company's cost savings program is on track to achieve €2.1 billion in annual savings by 2026, with €800 million already realized. However, net debt rose slightly to €19.7 billion, but the company maintains a solid equity ratio of 45.4%.
These are recent developments for BASF, which also anticipates low triple-digit million-euro costs in 2024 due to new site operations in China. Despite these additional costs and a predicted decline in global light vehicle production, the company remains optimistic about its Q4 performance, particularly in the agricultural sector. The company's full-year results for 2024 will be published on February 28, 2025.
InvestingPro Insights
Building on Goldman Sachs' optimistic outlook for BASF SE, recent data from InvestingPro provides additional context to the company's financial position and market performance. BASF's market capitalization stands at $42.58 billion, reflecting its significant presence in the chemicals industry. The company's P/E ratio of 80.08, while high, should be considered alongside InvestingPro's adjusted P/E ratio of 40.66 for the last twelve months as of Q3 2024, which offers a more nuanced view of the company's valuation.
InvestingPro Tips highlight BASF's strengths and potential areas for investor consideration. Notably, BASF "pays a significant dividend to shareholders," with a current dividend yield of 5.58%. This aligns with the company's track record of maintaining dividend payments for 33 consecutive years, demonstrating a commitment to shareholder returns even during challenging periods.
Furthermore, InvestingPro indicates that BASF is "trading at a low P/E ratio relative to near-term earnings growth," with a PEG ratio of 0.67 for the last twelve months as of Q3 2024. This suggests that the stock may be undervalued relative to its expected growth, supporting Goldman Sachs' bullish stance.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips on BASF, providing a deeper understanding of the company's financial health and market position.
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