On Wednesday, Jefferies analyst Chris Counihan upgraded BASF SE (BAS:GR) (OTC: OTC:BASFY) stock from Hold to Buy, increasing the price target to €53.00 from €53.00. The upgrade reflects a positive outlook for the company's operational performance leading into 2025.
Counihan highlighted several factors contributing to this improved perspective, including the potential for improved chemical spreads, increased volumes, cost reductions, and the possibility of lower European gas prices.
Counihan noted that the current spot levels of upstream chemical spreads could support a 7% group EBITDA tailwind into 2025, which, despite being 17% below mid-cycle levels, marks the first time in three years that chemical spreads could contribute positively to earnings in the year ahead.
Additionally, the analyst pointed out that improving volumes, starting from a low level, could result in significant profit margins as incremental volumes are expected to drop through at more than double the underlying operating margins.
The report also mentioned that BASF SE is likely to achieve cost reductions across the group that will outpace inflation, a feat not seen in the past three years. The company's CEO, Kamieht, has reportedly received greater support from various stakeholders to implement changes within the organization.
Furthermore, Counihan suggested that there is potential for European gas prices to decrease over a 2-3 year period, which could improve BASF SE's position on the global cost curve. Lastly, the new strategy of remunerating employees based on divisional targets could enable the company's downstream operations to catch up with its peers, a development Counihan described as "long overdue."
The upgrade and revised price target by Jefferies signal confidence in BASF SE's strategic initiatives and market position as the firm anticipates multiple avenues of upside for the company in the near future.
In other recent news, Goldman Sachs has upgraded its rating for BASF to a buy from a neutral position, raising the stock price target from EUR45.00 to EUR53.00. This adjustment follows a string of downward revisions by industry analysts.
Goldman Sachs analysts predict that BASF has reached a turning point, with both microeconomic and macroeconomic factors moving in a favorable direction, suggesting potential for over 20% upside in BASF's stock.
Moreover, BASF has 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.
These recent developments were 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%.
InvestingPro Insights
Adding to Jefferies' optimistic outlook on BASF SE, recent data from InvestingPro provides further context to the company's financial position and market performance. BASF's market capitalization stands at $40.37 billion, reflecting its significant presence in the chemicals industry. The company's P/E ratio of 76.26, while high, is tempered by an adjusted P/E ratio of 39.72 for the last twelve months as of Q3 2024, suggesting potential value relative to earnings.
InvestingPro Tips highlight BASF's strong dividend profile, with the company maintaining dividend payments for 33 consecutive years and currently offering a substantial dividend yield of 5.76%. This aligns with the company's status as a prominent player in the chemicals industry and may appeal to income-focused investors.
Despite recent market challenges, with the stock trading near its 52-week low, InvestingPro Tips indicate that BASF is expected to be profitable this year, supporting Jefferies' positive outlook. The company's PEG ratio of 0.68 suggests it may be undervalued relative to its growth prospects, which could be attractive given the anticipated improvements in chemical spreads and volumes mentioned in the Jefferies report.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for BASF, providing a deeper understanding of the company's financial health and market position.
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