Shares of LyondellBasell Industries NV LYB have underperformed peers, despite a similar reduction in forecasts and offering a dividend that seems to be sustainable, according to BofA Securities.
The LyondellBasell Analyst: Steve Byrne upgraded LyondellBasell Industries from Underperform to Neutral and raised the price target from $59 to $68.
The LyondellBasell Thesis: The stock has lost 34.2% year-to-date versus a 26.7% decline in the Dow, Byrne said in the Tuesday upgrade note. (See his track record here.)
LyondellBasell witnessed significant pressure on profits in its olefin and polyolefin segments, intermediates and derivatives and advanced polymer solutions. The pressure was due to weak volumes and soft underlying margins, the analyst said.
BofA lowered the earnings estimates for the third quarter and the full year from $1.30 to $1.18 per share and from $4.85 to $4.75 per share, respectively.
Despite the pressure on earnings, LyondellBasell managed to generate $700 million in free cash in the second quarter, Byrne said.
Although the company may need to borrow to pay its dividend through the year's end, the 2021 prospects appear brighter, the analyst said.
"We refrain from getting more bullish as we see headwinds from global polyethylene capacity expansions as keeping a lid on profit growth overall."
LYB Price Action: Shares of LyondellBasell Industries were trading 4.05% higher to $64.68 at last check Tuesday.
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