Scotiabank raises Methanex target to $60 on firm markets

On Wednesday, Scotiabank maintained its Sector Outperform rating on Methanex (NASDAQ:MEOH) Corporation (NASDAQ:MEOH) and raised the price target to $60.00 from the previous $58.00. The adjustment reflects a positive outlook on the methanol markets, which are described as generally firm, despite some global demand weaknesses. The analyst cited the possibility of methanol blending into gasoline in Iran as a factor, noting a decrease in exports from the country, although this could not be confirmed.

The report also highlighted Methanex's potential free cash flow (FCF), estimating it at $6 per share for the year 2025. This estimate is considered conservative, given the company's average selling price (ASP) has been consistently above the spot price for the past two years. This trend suggests that the actual FCF could be closer to $7.00 to $7.50 per share, indicating a free cash flow yield of 15% to 16%.

For the second quarter, the firm's volume estimates are slightly more conservative than other analysts, but its EBITDA prediction of $174 million aligns with the market consensus. Additionally, the imminent start of the company's G3 operations is anticipated without any issues, as per company confidence. The market impact of G3 is expected to be tempered by the Atlas/Titan switchover scheduled for September.

In terms of operations, the report points to a potential increase in gas availability in Chile, which could boost operational rates. However, in Egypt, gas availability is expected to remain uncertain throughout the summer. Lastly, investor sentiment is reported to be shifting, with many who exited the stock in the first quarter due to G3 concerns likely to return in the third quarter.

In other recent news, Methanex Corporation has experienced several noteworthy developments. RBC Capital maintained its Sector Perform rating for Methanex, with a price target of $55.00. This decision is based on the updated financial model incorporating the latest reference prices for Methanex and the most recent methanol price forecast by Chemical Market Analytics (CMA). Despite potential risks such as a global economic downturn or a decline in energy prices, RBC Capital's analysis indicates a positive long-term outlook for the methanol market, which is reflected in Methanex's projected financial performance.

Furthermore, Scotiabank has increased its price target for Methanex to $58.00, citing strong free cash flow projections. This robust cash flow prospect is anticipated to elevate Methanex's stock into the $60 range over time. Methanex's recent performance metrics have been particularly strong, with the MX-weighted spot price reaching $325 per metric ton, up from $300 per metric ton just a quarter ago.

In addition, Methanex announced a temporary shutdown of its Egypt methanol production facility due to reduced gas supply. The company is currently engaging with its partner and gas supplier to restore operations. These are some of the recent developments involving Methanex Corporation.

InvestingPro Insights

In light of Scotiabank's optimistic view on Methanex Corporation, real-time data from InvestingPro complements the analysis with valuable metrics. The company's adjusted market capitalization stands at $3.3 billion, and it is trading with a Price to Earnings (P/E) ratio of 19.73 for the last twelve months as of Q1 2024. This valuation is in line with the industry standards and reflects the company's steady earnings performance. Additionally, the P/E ratio stability is mirrored by Methanex's Gross Profit Margin, which is reported at 20.04%, showcasing the company's efficiency in maintaining profitability despite market fluctuations.

InvestingPro Tips highlight that Methanex has been consistently returning value to shareholders, maintaining dividend payments for 23 consecutive years, which is a testament to the company's financial resilience and commitment to shareholders. Moreover, analysts predict the company will be profitable this year, with profitability already demonstrated over the last twelve months. These insights are particularly relevant for investors considering the company's track record and future earnings potential.

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