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On Friday, Morgan Stanley (NYSE:MS) analyst Sasikanth Chilukuru upgraded Repsol SA (REP:SM) (OTC: OTC:REPYY) stock from Underweight to Equalweight and increased the price target to EUR13.40, up from the previous EUR11.70. The upgrade reflects the firm’s positive view of Repsol’s strategic update and its commitment to shareholder distributions. The company, currently valued at $15.9 billion, has maintained dividend payments for 34 consecutive years and demonstrated strong recent performance with a 16.8% return year-to-date. InvestingPro analysis shows additional insights about Repsol’s dividend sustainability and financial health metrics.
Repsol management emphasized during their Strategy Update in February 2024 that their main focus regarding capital allocation is to ensure a strong return to shareholders. This commitment was reinforced in the third quarter 2024 earnings call, where the company pledged to distribute 25-35% of its Cash Flow From Operations (CFFO). According to InvestingPro data, the company maintains a healthy financial position with a "GOOD" overall health score and operates with a moderate level of debt, supporting its distribution capabilities.
The company indicated that if Brent crude oil prices remain at $70-75 per barrel and refining margins at $6 per barrel, the shareholder distributions for 2025 could range between 30-35% of CFFO. Management also mentioned that avoiding a credit rating downgrade is crucial to maintaining high distribution levels.
Alongside the fourth quarter 2024 results released today, Repsol provided guidance for at least €1.8 billion in distributions for 2025, a slight decrease from €2.0 billion in 2024. Despite the more challenging environment, the company has affirmed its dedication to high shareholder returns. Morgan Stanley also acknowledged Repsol’s increased capability to sustain these distributions into 2026 and 2027, surpassing the firm’s initial expectations.
In other recent news, Repsol SA has been the focus of analyst attention, with UBS making notable adjustments to its stock rating. UBS initially upgraded Repsol from Neutral to Buy, citing a positive outlook on refining margins and the company’s 2025 macroeconomic prospects. The firm set a new price target of €13.00, up from €11.50, suggesting potential for increased earnings and shareholder returns. However, shortly after, UBS downgraded Repsol back to Neutral while raising the price target to €13.50. The downgrade was attributed to the stock’s recent appreciation and perceived limitations on further growth. UBS analysts noted that while Repsol’s recent financial results and updated 2025 outlook were well-received, the current valuation might already reflect these improvements. They also highlighted risks related to European refining margins and US gas prices, which have exceeded expectations. Despite the downgrade, UBS’s revised earnings forecasts for 2025 suggest a 17% increase in net income, indicating potential upside risks to consensus estimates.
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