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On Thursday, JPMorgan analysts downgraded Arkema SA (OTC:ARKAY) (AKE:FP) (OTC: ARKAF) stock from ’Neutral’ to ’Underweight,’ significantly reducing the price target to EUR 68.50 from EUR 92.00. The revision comes as the firm adjusted its expectations for the company’s future earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings before interest and taxes (EBIT).
The analysts reduced their forecast for Arkema (EPA:AKE)’s adjusted EBITDA in fiscal years 2025 and 2026 by 4% and 6%, respectively. These new estimates fall 6% and 9% short of the Bloomberg consensus. Similarly, the forecast for adjusted EBIT in the same years was cut by 9% and 11%, which is 9% and 15% below the consensus.
According to JPMorgan, if Arkema’s historical seasonality is considered, the implied adjusted EBITDA and EBIT for fiscal year 2025 would be approximately €1.32 billion and €0.65 billion, respectively. These figures are about 18% and 30% below the market consensus.
Despite the fact that Arkema’s valuation based on fiscal years 2026 and 2027 enterprise value to EBITDA multiples of around 6x, which is below the long-term median of approximately 7x, and the price to earnings (P/E) ratio for fiscal years 2025 and 2026 of 10-11x, below the long-term median of 12x, the shares are considered inexpensive. Furthermore, the firm’s estimated free cash flow (FCF) yield for the same period is around 7%.
However, JPMorgan anticipates that the potential for significant reductions to consensus estimates, the impact of a declining fluorogases business which could see approximately 10% and 20% cuts to fiscal year 2025 adjusted EBITDA and FCF, and the possibility of more return on invested capital (ROIC) dilutive acquisitions, will likely keep the valuation low. Arkema’s post-tax ROIC is already projected to be low at 5% and 6% excluding goodwill for 2025. These factors lead JPMorgan to predict that Arkema shares will underperform in the foreseeable future.
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