Tuesday, Piper Sandler adjusted its price target on shares of LSB Industries (NYSE:LXU) to $9.00, up from the previous $8.00, while maintaining an Underweight rating on the stock.
The firm's decision is based on an increased EBITDA forecast for 2025, which takes into account enhanced production efficiency, expected higher volumes due to greater uptime compared to 2024, and anticipated lower natural gas costs after the expiration of high-priced hedges in 2024.
The valuation now employs a 2025E EV/EBITDA multiple of 7.0x, a decrease from the previous 7.5x. This adjustment reflects the expectation that earnings will approach midcycle levels.
Piper Sandler believes that over time, LSB Industries' shares could trade at a higher multiple due to the company's shift in trading agricultural exposure for increased price and volume certainty in industrial markets. Moreover, the firm anticipates that LSB Industries may command a premium for its production of blue or green ammonia.
Despite the revised stock price target, the Underweight rating suggests caution, as LSB Industries must navigate its agricultural market exposure through at least 2025. The analyst noted potential risks to the rating, including adverse weather effects that could impact crop yields in 2024. Such events could influence grain prices and consequently affect nutrient pricing.
Moreover, any significant changes in interest rates over the next 12 months could disproportionately impact small-cap companies like LSB Industries.
InvestingPro Insights
Recent data from InvestingPro offers a nuanced view of LSB Industries' (NYSE:LXU) financials and market performance. The company's market capitalization stands at a robust $619.57 million, with a forward-looking P/E ratio of 36.28 indicating that investors have high expectations for future earnings.
Still, it is worth noting that the P/E ratio based on the last twelve months as of Q1 2024 is significantly higher at 65.65, suggesting that the stock may be overvalued compared to earnings. The revenue for the last twelve months as of Q1 2024 is reported at $550.95 million, though this represents a substantial decline of 37.65% compared to the previous period.
On the strategic front, LSB Industries' management has been actively buying back shares, a move that could signal confidence in the company's prospects. Moreover, two analysts have revised their earnings upwards for the upcoming period, hinting at potential improvements in financial performance. Yet, the company is grappling with weak gross profit margins, which currently stand at 12.15%, reflecting challenges in cost management or pricing power.
For investors looking for more in-depth analysis, there are additional InvestingPro Tips available, providing a more comprehensive understanding of LSB Industries' financial health and market position. Utilize coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and unlock these valuable insights.
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