Investing.com -- Shares of Lanxess AG (ETR:LXSG) took a hit after JPMorgan downgraded the stock to "underweight" from "neutral."
At 5:41 am (0941 GMT), Lanxess was trading 2.8% lower at €27.985.
The brokerage cited concerns about the company’s financial outlook, noting that its shares had risen above JPMorgan’s unchanged price target of €26 for December 2025.
The stock was trading at €28.68 before the downgrade was announced.
JPMorgan's analysis flagged a challenging macroeconomic environment, marked by uncertainties surrounding demand recovery, particularly from China, and ongoing interest rate cuts across several regions.
Despite Lanxess’s efforts to improve its balance sheet by cutting costs, reducing capital expenditures, and selling assets, the bank remains unconvinced that a substantial rebound is on the horizon.
One of the main points in JPMorgan's decision was Lanxess’s weaker margins and return on invested capital compared to its peers.
The brokerage expects Lanxess’s ROIC to remain materially lower even through 2025, with the company’s debt levels remaining relatively high.
Additionally, recent portfolio changes and asset sales, including the sale of its urethane systems business, have not resulted in the kind of financial improvement that would justify a more favorable valuation, according to the bank's assessment.
JPMorgan also trimmed its earnings expectations for Lanxess, adjusting estimates for earnings before interest, taxes, depreciation, and amortization down for both 2024 and 2025.
The brokerage sees limited upside potential for the stock, especially in the context of a tough market backdrop, and thus recommended investors reconsider their exposure to the company.