Lanxess shares downgraded to underweight by JPMorgan

On Friday, JPMorgan issued a downgrade for Lanxess AG (ETR:LXSG) (LXS:GR) (OTC: LNXSF), shifting the rating from Neutral to Underweight and maintaining a price target of €26.00. The firm highlighted that Lanxess' share price has surpassed the December 2025 target, prompting the rating change.

The downgrade comes amid a challenging macroeconomic environment, with uncertainties around the timing and impact of demand changes due to China's stimulus measures and interest rate cuts in various regions. The firm notes that while some investors expect Lanxess' earnings to rebound strongly in a macro recovery, the current economic outlook does not support a bullish stance.

In response to the tough macro backdrop, Lanxess has implemented several strategies over the past two years. These include cost-cutting measures, reductions in capital expenditures and working capital, as well as asset sales, all aimed at navigating the difficult economic conditions and improving the company's balance sheet.

JPMorgan's stance reflects skepticism regarding the potential for a near-term demand inflection for Lanxess, despite the company's actions to mitigate the effects of the challenging macro environment. The firm's maintained price target of €26.00 is based on the unchanged outlook for December 2025.

In other recent news, Lanxess AG has been the focus of significant analyst attention. Morgan Stanley has upgraded Lanxess stock from Underweight to Overweight, raising the price target to EUR 37.00. This change reflects the bank's confidence in Lanxess' strategic focus on disposal and free cash flow, projected to lower the company's net debt. Morgan Stanley also suggests that the market undervalues Lanxess' Envalior unit, which could generate around EUR 450 million in EBITDA and add value to Lanxess' shares.

Deutsche Bank has also updated its financial model for Lanxess, resulting in a price target increase from €27.00 to €28.00. This adjustment is driven by an optimistic outlook for Lanxess' 2024 EBITDA, now forecasted to be €612 million, a 9% increase from previous estimates. The bank's revised model anticipates significant cost savings and the elimination of previously estimated inventory reduction.

The management of Lanxess AG has projected that the third quarter of 2024's EBITDA will be close to or higher than the second quarter's reported EBITDA of €181 million. These recent developments provide a comprehensive view of Lanxess AG's financial outlook, as interpreted by analysts from Morgan Stanley and Deutsche Bank.

InvestingPro Insights

Adding to JPMorgan's analysis, recent InvestingPro data provides a nuanced view of Lanxess AG's financial position. Despite the challenging macroeconomic environment highlighted in the article, InvestingPro Tips suggest that Lanxess's net income is expected to grow this year, and analysts predict the company will return to profitability. This optimism contrasts with the company's current unprofitable status over the last twelve months, as indicated by its negative P/E ratio of -7.13.

The stock's recent performance aligns with JPMorgan's observation of the share price surpassing targets, with InvestingPro data showing strong returns of 11.14% over the last month and 15.9% over the last three months. The stock is currently trading near its 52-week high, at 98.05% of that peak.

Interestingly, despite the downgrade, Lanxess maintains a high shareholder yield and has a track record of 18 consecutive years of dividend payments, which may appeal to income-focused investors. The company's price-to-book ratio of 0.55 suggests it might be undervalued relative to its assets, potentially offering a margin of safety for long-term investors.

For those seeking a deeper analysis, InvestingPro offers 11 additional tips for Lanxess AG, providing a more comprehensive view of the company's prospects in light of the current market conditions.

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