TD Cowen cuts Neste Oyj shares target on margin concerns

EditorEmilio Ghigini
Published 14/03/2024, 11:26
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On Thursday, TD Cowen adjusted its financial outlook for Neste Oyj (NESTE:FH) (OTC: NTOIY), reducing the price target of the shares to €33.00 from the previous €36.00, while maintaining a Market Perform rating on the stock. The decision follows the company's updated renewable product demand forecast for 2030, which anticipates a shift from the current oversupply to an undersupply in the longer term.

Despite the positive long-term perspective, the analyst noted that investor confidence might be wavering due to concerns over when renewable product margins will hit their low point.

Neste reiterated most of its operational guidance, expecting sequential quarterly increases in sustainable aviation fuel sales throughout the year. The company also highlighted its capability to process challenging feedstocks that competitors cannot manage.

However, the stock has experienced a 20% decline since the day before the fourth-quarter earnings were reported, suggesting that investors might be reluctant to overlook short-term challenges in favor of the traditionally long-term valuation approach.

The analyst day for Neste was seen as a positive event, reinforcing the company's optimistic long-term outlook for the renewable sector. Despite recognizing Neste's competitive advantages in feedstock and product mix, TD Cowen anticipates that the stock may remain subdued until investors are assured of a stable margin floor. This could potentially occur around mid-year as new industry capacities become fully operational.

The firm has adjusted its valuation multiple to 9x on the 2024 EBITDA, down from the historical 13x, resulting in a revised price target of $18. This valuation is based on a blend of the 2024 EBITDA forecast and the net present value of EBITDA extending to 2027. Neste is scheduled to hold its pre-silent period call on March 25, with TD Cowen's expectations for first-quarter 2024 EBITDA in line with the consensus.

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