UBS sees OMV stock poised for recovery with strong chemicals earnings growth

On Tuesday, UBS analyst revised the rating for OMV AG stock, listed on the Vienna Stock Exchange as OMV:AV and over-the-counter as OMVKY, from Neutral to Buy, adjusting the price target to €45.00, an increase from the previous €41.00.

The upgrade comes as a response to the potential turnaround in the company’s performance, particularly in the chemicals sector, which has seen underperformance in recent years.

OMV AG has lagged behind its industry peers by 50% over the past three years, primarily due to its involvement in the underwhelming chemicals market.

However, UBS foresees a shift in the company’s trajectory, with expectations for chemical earnings to surge by more than 30% per annum leading up to 2026. This optimistic outlook is fueled by anticipated higher volume sales.

The stock’s appeal is further enhanced by its approximately 12.3% distribution yield, one of the highest in its sector, making it an attractive option for investors seeking income. Additionally, UBS highlights the stock’s defensive qualities, which are deemed beneficial during economic downturns.

The new price target set by UBS suggests that there is over 25% upside potential for OMV AG’s stock on a total shareholder return (TSR) basis. This revision reflects a more positive view of the company’s future earnings and overall financial health.

In other recent news, OMV AG has undergone several significant changes. The company’s stock was upgraded to ‘Hold’ from ‘Sell’ by CFRA, primarily due to a recent 20% drop in share price, influenced by concerns over a potential disruption in gas supply from Gazprom (MCX:).

OMV’s Q2 2024 earnings before interest and taxes (EBIT) were reported at EUR1.23 billion, a 4% increase year-over-year but a 17% decrease from the previous quarter, in line with consensus estimates.

The quarter-over-quarter decline was attributed to a lower refining margin and a seasonal dip in Gas Marketing & Power, partially offset by stronger chemical margins. The company revised its 2024 outlook for polyolefins, expecting polyethylene margins to exceed USD400 per ton. Refinery utilization expectations were adjusted downward to 90%.

CFRA maintained other guidance metrics, anticipating refining margins to be USD8 per barrel and hydrocarbon production to be between 330,000 and 350,000 barrels of oil equivalent per day. The firm forecasts earnings per share (EPS) of EUR7.10 for 2024 and EUR7.20 for 2025 for OMV. These are recent developments shaping the company’s future.”

InvestingPro Insights

As OMV AG (OMVKY) garners attention with its upgraded rating and promising outlook in the chemicals sector, it’s worth considering the latest metrics and insights from InvestingPro. The company’s market capitalization stands at a robust $14.28 billion, and it boasts an attractive price-to-earnings (P/E) ratio of 8.21. This P/E ratio indicates a potentially undervalued stock, especially when compared to industry averages. Additionally, OMV AG’s commitment to shareholder returns is evident through its high dividend yield of 8.48%, which is particularly compelling for income-focused investors.

Two InvestingPro Tips further illuminate the company’s financial stance. Firstly, OMV AG has a track record of raising its dividend for 3 consecutive years, demonstrating a reliable and growing income stream for shareholders. Secondly, the company has maintained dividend payments for an impressive 30 consecutive years, underscoring its financial stability and commitment to shareholder returns. For investors seeking additional insights, there are more InvestingPro Tips available, including detailed earnings revisions and debt levels, which can be found at https://www.investing.com/pro/OMVKY.

These financial indicators and InvestingPro Tips provide a comprehensive picture of OMV AG’s investment potential, aligning with UBS’s positive outlook and reinforcing the stock’s appeal to both growth and income investors.

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