By Sam Boughedda
A JPMorgan analyst downgraded shares of LyondellBasell Industries (NYSE:LYB) and Dow Inc (NYSE:DOW) to Neutral from Overweight in a note on Friday.
The analyst, who lowered Dow's price target to $47 from $60 and LyondellBasell's to $80 from $115 per share, said the stocks are "probably not the best places to put new money to work."
"The direction of shorter-term commodity chemical prices and volumes is decidedly lower. The market will probably have difficulty calibrating the degree of EBITDA weakness the companies are likely to experience in the context of a slowing global economy with rising interest rates," explained the analyst.
He added that Dow and LyondellBasell's above-average dividend yields, while attractive, probably hold less allure for investors capturing rising bond returns in the risk-free Treasury market.
"We think it is unlikely that Dow and Lyondell will outperform the market in the coming weeks for these reasons. That said, both companies offer dividend yields above 5.5%, which we believe secure. Both companies are likely to deliver free cash flow yields above 10% in 2023. Both companies have good balance sheets," explained the analyst. "We are unwilling to Underweight the two companies for these reasons. Both Lyondell and Dow, in our opinion, reflect good value that is unlikely to be recognized shorter-term against a background of negative shorter-term earnings momentum."