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On Monday, Morgan Stanley (NYSE:MS) analyst Sasikanth Chilukuru adjusted the firm’s stance on Galp Energia (ELI:GALP:SM) (OTC: GLPEY (OTC:GLPEY)), upgrading the stock from Underweight to Equal-weight while slightly reducing the price target to €15.20 from €15.40. Currently trading at $8.12 with a market capitalization of $11.36 billion, the stock is near its 52-week low of $7.72. The revision reflects a nuanced view of the company’s prospects, particularly regarding its operations in Namibia and its financial forecasts. According to InvestingPro, the company maintains a strong financial health score of 3.0 out of 5.
Chilukuru noted ongoing uncertainty surrounding Galp Energia’s Namibian project, particularly in terms of reservoir characteristics and initial development scope. Despite these challenges, the analyst sees a possibility for the company to realize some value through a farm-down, given the decline in the implied value of its Mopane asset this year. InvestingPro data shows the company has maintained dividend payments for 18 consecutive years, demonstrating long-term financial stability.
Galp Energia’s financial outlook was also a factor in the rating change. Morgan Stanley forecasts the company’s average free cash flow yield to be approximately 6.8% from 2025 to 2027, or 3.7% excluding disposal effects. Additionally, the expected average yield from distributions, including dividends and buybacks, is projected to be around 6.7%, which is at the lower end of the sector range.
The new price target of €15.20, slightly down from the previous €15.40, incorporates the latest guidance from the company and Morgan Stanley’s oil price forecasts. According to Chilukuru, the new target suggests limited upside potential for the stock, leading to the decision to neutralize the rating to Equal-weight.
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