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On Friday, JPMorgan downgraded shares of LyondellBasell Industries (NYSE:LYB), reducing the stock rating from Overweight to Neutral and lowering the price target to $60 from $80. The move comes amid concerns over the cyclical nature of the petrochemical industry and its vulnerability to economic downturns. Currently trading at $63.11, InvestingPro analysis suggests the stock is undervalued, with a Financial Health Score of "GOOD" based on comprehensive fundamental analysis.
Stifel analysts cited several factors influencing their decision, including the company’s status as a large, efficient commodity petrochemical firm with a consistent history of annual dividend increases in the range of 5-6%. The company currently offers an attractive 8.49% dividend yield, with recent dividend growth of 7.2%. While high-dividend stocks are typically attractive in a declining interest rate environment, the analysts expressed reservations about the sector’s performance prospects given current market conditions. For deeper insights into LYB’s dividend sustainability and growth potential, InvestingPro subscribers can access the comprehensive Pro Research Report, one of 1,400+ available detailed company analyses.
The analysts noted that the petrochemical industry’s cyclicality could lead to underperformance relative to the S&P, especially in the face of declining market sentiment, rising recessionary risks, and greater economic uncertainty. They highlighted the direct impact of oil price fluctuations on LyondellBasell’s earnings before interest, taxes, depreciation, and amortization (EBITDA).
LyondellBasell’s EBITDA is particularly sensitive to changes in oil prices, with a $10 per barrel shift in Brent crude prices potentially affecting the company’s annual EBITDA by approximately $400 million. This susceptibility to oil price volatility contributed to the analysts’ decision to adjust their outlook on the stock.
The downgrade reflects JPMorgan’s cautious stance on LyondellBasell Industries as it navigates an increasingly uncertain economic landscape, with specific attention to the potential impacts of recessionary conditions on the company’s financial performance.
In other recent news, LyondellBasell Industries reported its fourth-quarter and full-year 2024 financial results, highlighting strategic advancements. The company achieved an earnings per share of $6.40 for the year, and an EBITDA of $4.3 billion, with $3.8 billion in cash from operations. Despite challenges in the Olefins & Polyolefins segments, the Intermediates & Derivatives segment provided some positive impact, although it was not enough to offset the overall disappointing quarterly results. LyondellBasell’s management anticipates similar performance in the next quarter, with seasonal improvements expected to be balanced by higher raw material costs and turnaround activities. Analysts at BMO Capital Markets downgraded the company’s stock price target to $82 from $87, maintaining a Market Perform rating due to the uncertain path toward earnings stability. However, the company’s robust free cash flow was noted as a key differentiator, ensuring the ability to sustain shareholder returns. LyondellBasell returned $1.9 billion to shareholders through dividends and buybacks, and continues to focus on circular and low-carbon solutions, with volumes in this area increasing by 65%. Strategic acquisitions and facility expansions are expected to support future growth.
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