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Investing.com - Morgan Stanley downgraded Repsol SA (BME:REP) from Overweight to Equalweight and set a price target of EUR15.80, citing diminished support from the refining sector.
The Spanish energy company’s shares had performed well since July, rising approximately 25% until late September compared to mid-year levels, outperforming median European peers by about 15 percentage points despite recent softness.
Morgan Stanley highlighted Repsol’s higher exposure to the refining sector compared to peers as a key factor in its previous outperformance, noting the company benefited from stronger refining margins and a scarcity of other European companies with similar exposure.
The downgrade reflects Morgan Stanley’s forecast of limited clean free cash flow generation for Repsol over the next 12 months, with projections showing cash flows "very close to break-even in 2025-26" after accounting for lease payments, hybrid bond coupons, and minority dividends.
Despite these concerns, Morgan Stanley expects Repsol’s ongoing portfolio optimization program to generate sufficient disposal proceeds to maintain a "decent buyback program" of approximately €550 million next year, potentially allowing for an 11% total payout yield to shareholders.
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