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Investing.com -- Morgan Stanley (NYSE:MS) has upgraded Repsol (OTC:REPYY) to "equal-weight" rating from "underweight,” raising its price target to €13.40 from €11.70.
This revision follows Repsol’s improved guidance for 2025 cash flow from operations (CFFO) and share buybacks, which exceeded expectations.
In contrast, UBS Global Research has downgraded Repsol to "neutral" despite raising its price target from €13 to €13.50, citing valuation concerns after a strong share price rebound.
Morgan Stanley’s upgrade is driven by several positive developments. Repsol expects 2025 production to be at the upper end of its guidance range of 530-550kboe/d, benefiting from increased Libyan output and the Leon-Castille startup in the US.
Refining margins have also improved, with Repsol’s margin indicator rising to $7.1/bbl due to stronger diesel demand.
The company anticipates further efficiency gains, with the premium over refining margins projected to grow from $1.2/bbl to $2.0/bbl by 2025, supported by cost-saving initiatives.
Additionally, the customer segment is on track to post its €1.4 billion EBITDA target by 2027, while enhanced shareholder returns have prompted Morgan Stanley to revise its 2025-27 dividend and buyback expectations upwards.
UBS, however, sees limited further upside after Repsol’s recent stock surge. The brokerage acknowledges the improved outlook but believes it is largely priced into the shares, limiting additional gains.
Risks to European refining margins and US gas prices, both key drivers for Repsol’s stock, have shifted downward as prices have already exceeded UBS forecasts.
The brokerage’s CFFO guidance of €6.0-6.5bn for 2025, though slightly below UBS’s previous estimate of €6.7bn, still surpasses market consensus and is backed by efficiency improvements rather than just macroeconomic factors.
Shareholder returns remain strong, with Repsol confirming a minimum buyback of €700m for 2025.
However, UBS underscores the importance of executing €2 billion in planned asset disposals, primarily in the low-carbon segment, with half expected to be completed by Q1 2025.
The analysts has also slightly trimmed its EPS forecast for 2025-2028 by an average of 3%, citing lower near-term production and a weaker Low Carbon Generation contribution.
From a valuation perspective, Morgan Stanley’s revised estimates now anticipate 2025 and 2026 CFFO at €6.1bn and €6.2bn, respectively, while UBS expects CFFO to land at the upper end of the €6.-6.5 billion range.
Repsol’s high distribution yield remains appealing, with UBS estimating a 14% yield in 2025. However, concerns persist over the gap between distributions and free cash flow, with FCF yield projected at 4% in 2025 before rising to 10% in 2026. UBS continues to apply a 50/50 blend of Sum-of-the-Parts and multiples valuation, using a long-term oil price of $75/bbl.