By Michael Elkins
RBC Capital upgraded LyondellBasell Industries (NYSE:LYB) to an Outperform (From Sector Perform) rating and raised the price on the stock to $130.00 (From $99.00) after updating FY24 EBITDA estimates to $6.3B (From $6.0B). RBC also raised their FY24 EPS estimate to $11.80 (From $11.00).
RBC analysts believe PE should improve from the current EBITDA trough in Q2. Per CMA, demand is picking up and US PE exports continue, which is crucial to clearing the supply surplus.
The analysts wrote in a note, "While the China recovery has been muted thus far, stimulus could be a positive driver in Q2 and beyond. In addition, NA Contract PE prices rose by 3.0cpp in January, which could continue in Feb-Mar, per LYB. LYB noted in our investor meetings in Houston yesterday, a shift from durables to non-durables which we think is a slight positive for PE."
LYB remains on track to close its refinery by year-end 2023, which could be a $700M w/cap benefit at $95 crude and is an immediate benefit to its ESG profile. LYB also reiterated its Value Enhancement Program (not cost-cutting, but operational improvement) that is expected to generate ~$750M in recurring annual EBITDA improvement by YE25, and includes its new Circular and Low Carbon Solutions business unit, focusing on its Circulen products.
RBC believes that the company will increase its focus on Circularity as its "North Star" at its March 14 Capital Markets Day.
Shares of LYB are up 0.65% in mid-day trading on Friday.