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On Monday, Morgan Stanley (NYSE:MS) analyst Sasikanth Chilukuru upgraded Repsol SA (REP:SM) (OTC:REPYY) stock from Equalweight to Overweight, setting a new price target of EUR13.30, up from the previous EUR12.00. The revision reflects Morgan Stanley’s assessment of Repsol’s financial strategies and the firm’s own outlook for energy prices.
Repsol has recently indicated that in a stressed scenario, its 2025 Cash Flow From Operations (CFFO) could decrease by €0.5 billion to a range of €5.5-6.0 billion. Despite this, the company’s projected overall distributions of €1.8 billion would account for approximately 30-33% of the guided CFFO, aligning with its payout commitment of 30-35%. Repsol also plans to offset the potential decline in CFFO with a corresponding reduction in net capital expenditures (capex).
The company has further stated that should macroeconomic conditions worsen, they have the flexibility to reduce capex more significantly in the near to medium term. This proactive stance on financial management seems to be a key factor in Morgan Stanley’s upgraded rating.
Morgan Stanley’s outlook for oil and gas prices contrasts with Repsol’s stressed scenario. The firm anticipates Brent crude oil prices to drop to $55 per barrel by 2026, which is lower than Repsol’s assumption of $65 per barrel. Conversely, Morgan Stanley expects a considerable rise in US Henry Hub natural gas prices, forecasting them to reach $5.0 per million British thermal units (mmbtu) by 2026 due to increased US LNG supply and lower activity levels. This is significantly higher than the $3.5 per mmbtu projected in Repsol’s stress scenario.
Repsol’s share price and investor sentiment may be influenced by Morgan Stanley’s updated perspective, which suggests confidence in the company’s ability to navigate potential economic challenges while capitalizing on future market developments in the energy sector.
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