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On Thursday, JPMorgan analysts downgraded shares of BASF SE (BAS:GR) (OTC: OTC:BASFY), a $47.8 billion market cap chemicals giant, from ’Neutral’ to ’Underweight’, also reducing the price target from €52.00 to €45.00. According to InvestingPro data, the stock has shown strong momentum with a 21.71% year-to-date return, despite recent analyst concerns. The adjustment follows a revision of the company’s projected adjusted earnings before interest and taxes (EBIT) for the fiscal years 2025 and 2026, which were decreased by 6% and 15% to €3.9 billion and €4.6 billion, respectively.
The new EBIT estimates represent a modest year-over-year growth of 1% for 2025 and a more significant 17% for 2026. However, these figures fall below the Vara consensus by 7% and 12%, respectively. Additionally, JPMorgan analysts have reduced their adjusted earnings per share (EPS) forecasts for the same periods by 8% and 18%, resulting in €3.2 and €3.6 per share, which is 10% and 15% below the consensus estimates.
The valuation of BASF stock now appears expensive when compared to other cyclical chemical stocks. The expected enterprise value to EBITDA (EV/EBITDA) multiples for 2025 and 2026 are around 8 times, which aligns with the historical 10-year median but is higher than the median multiples for other diversified chemical stocks, which stand at 7 times for 2025 and 6 times for 2026. InvestingPro analysis shows a current P/E ratio of 34.33, supporting JPMorgan’s valuation concerns. However, InvestingPro’s Fair Value model suggests the stock might be slightly undervalued, with additional insights available in the comprehensive Pro Research Report. The forward price-to-earnings (P/E) ratios for BASF are projected at 16 times for 2025 and 14 times for 2026, compared to a historical median of 13 times and peer medians of 16 times and 13 times for the respective years. The forecasted free cash flow (FCF) yield for BASF is 0% for 2025 and 4% for 2026, which is below the peer median of 5% and 6%.
Despite the downgrade, JPMorgan acknowledges BASF’s efforts in portfolio rationalization aimed at creating value, as well as the cultural changes being implemented by management to drive structural performance improvements across the group. InvestingPro data reveals the company maintains a strong financial health score of 2.51 (GOOD) and has maintained dividend payments for 34 consecutive years, demonstrating consistent shareholder returns despite market challenges. For deeper insights into BASF’s financial health and growth potential, investors can access the detailed Pro Research Report, which provides comprehensive analysis of key metrics and growth drivers. Nonetheless, analysts believe that the potential benefits from these strategic moves are now largely reflected in the stock’s price, with a sum-of-the-parts (SOTP)-based value of €51.00.
In other recent news, BASF SE is preparing for a potential listing of its agricultural chemicals division, with Deutsche Bank AG (ETR:DBKGn) and Goldman Sachs Group Inc (NYSE:GS). assisting in the process. The division, which could be valued at over €20 billion, is part of a broader restructuring strategy under CEO Markus Kamieth. The company has also agreed to sell its Brazilian decorative paints business to Sherwin-Williams Co (NYSE:SHW). for $1.15 billion. Meanwhile, Citi has maintained a Neutral rating on BASF shares, with a price target of EUR51.00, noting potential volume growth and a stronger first quarter compared to peers. However, Citi expressed caution over BASF’s free cash flow guidance, which may fall short of market expectations.
Berenberg has downgraded BASF’s stock from Buy to Hold, raising the price target slightly to EUR52.00, citing a significant rally in the shares. Despite recent favorable political developments in Germany and economic stimulus in China, Berenberg suggests the stock may now be fairly valued. The analyst also highlighted potential divestitures, such as parts of the Coatings unit, which could impact BASF’s valuation. Additionally, BASF’s investment in Harbour Energy is under review, with the lock-up period for its stake expiring in the first half of 2025, potentially leading to further strategic actions.
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