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On Monday, Morgan Stanley (NYSE:MS) analysts initiated coverage on Vallourec (EPA:VLLP) SA (VK:FP) (OTC:VLOWY) with an Equalweight rating and a price target of €19.50. The analysts highlighted several factors influencing their outlook on the company.
Vallourec’s exposure to the premium high-value add category of the oil market is seen as less volatile compared to its peers. Despite this, the analysts noted that the company’s OCTG (Oil Country Tubular Goods) sector ranks lower in their order of preference due to its susceptibility to short-term oil market dynamics.
The analysts also mentioned that they are broadly in line with consensus forecasts for Vallourec over the coming years. They believe the current market environment does not support a significant upside to these consensus figures. The story of Vallourec resuming dividend payments is considered well understood by the market.
While there have been no indications from ArcelorMittal (NYSE:MT) regarding plans to increase its stake in Vallourec, Morgan Stanley analysts noted that the market might view this potential as providing some level of downside protection. Additionally, with Vallourec’s margins now aligning with those of Tenaris (BIT:TENR), the analysts suggested that Vallourec’s current 20% discount should narrow in the future.
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