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On Tuesday, UBS analyst Henri Patricot adjusted the firm’s stance on Neste Oyj (NESTE:FH) (OTC: NTOIY), downgrading the stock rating from Buy to Neutral. Accompanying this downgrade, the price target was also reduced significantly to €10.00 from the previous €15.00. The downgrade comes as the stock has experienced a substantial 63% decline over the past year, with particularly challenging performance in the last six months, showing a 45% drop. InvestingPro data reveals that despite these challenges, the company maintains a 20-year track record of consistent dividend payments. The adjustment comes amid concerns over potential near-term risks and a substantial decline in Renewable Products margins.
Patricot noted a sharp downturn in Renewable Products (RP) margins over the past month, prompting a revision of the first-quarter 2025 forecast to approximately $206 per ton, which is 38% lower than the consensus for the quarter. Despite this, there is an expectation for a rebound in margins to around $400 per ton next year. InvestingPro analysis confirms the margin pressure, showing a current gross profit margin of just 9.95%, though analysts project improved profitability for the coming year. However, the current weakness and anticipated consensus downgrades are expected to impact the stock’s performance, especially with the possibility of a slight increase in gearing for the year due to the lower margins.
The UBS analyst also highlighted that their forecast for the full year 2025 margin stands 17% below the consensus, at $277 per ton compared to the consensus figure of $335 per ton. Despite the downward revisions, valuation could offer some support, as the current share price is believed to factor in a sales margin of approximately $375 per ton. This is below UBS’s estimate of around $400 per ton for the following year, which is considered the threshold for generating double-digit returns on a new project.
Patricot’s comments suggest a cautious outlook for Neste’s near-term financial performance, with a particular emphasis on the impact of weaker margins on the company’s shares. The revised price target reflects these concerns, indicating a tempered expectation for Neste’s stock value in the immediate future. According to InvestingPro, the stock currently shows potential upside based on its Fair Value analysis, with additional insights available through 8 more ProTips and comprehensive financial metrics that could help investors make more informed decisions about this challenging market situation.
In other recent news, Neste Oyj has experienced notable developments concerning its financial outlook and stock ratings. Berenberg analysts downgraded Neste’s stock from "Buy" to "Hold" and significantly reduced the price target from €19.00 to €10.00. This decision followed Neste’s capital markets day, where the company outlined a new strategy to enhance its EBITDA run-rate by €350 million by the end of 2026. Berenberg expressed concerns about industry overcapacity and uncertainties surrounding the Clean Fuel Production Credit in the U.S., which could impact Neste’s earnings.
Additionally, TD Cowen adjusted its outlook on Neste, maintaining a Hold rating but lowering the price target from €19.00 to €15.00. Analyst Jason Gabelman predicts that Neste’s Renewable Product sales margin will remain flat year-over-year for 2025, with Sustainable Aviation Fuel production at 50% capacity. Gabelman also forecasts that Neste’s total sales volumes will slightly exceed consensus, but the sales margin will be lower than expected at $420 per ton. The revised price target reflects a lowered terminal valuation multiple, aligning Neste’s valuation with U.S. peers. Both analyst firms highlighted challenges facing Neste, including industry oversupply and margin pressures.
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