BofA Downgrades Tenaris, Says Recovery 'Will Take Time'

In a report published Monday, BofA Merrill Lynch analyst Frank McGann downgraded the rating on
Tenaris SA (ADR)
from Neutral to Underperform, while reducing the price target from $32 to $26. "Despite already low expectations, earnings risks remain on the downside, in our view, esp. related to consensus. A combination of slow demand and limited pricing power is likely to cause 2015-2017 earnings to be lower than previously expected," analyst Frank McGann said. Although a recovery could "begin to take hold" in 2017, there appear to be downside risks that are "not yet fully reflected" in Tenaris' share price. "We are also moving our income rating from 7 (Same/Higher) to 8 (Same/Lower), given risks of a lower dividend in weaker earnings periods," McGann added. "Although cost reductions should provide some offset, trends should remain weak," McGann wrote. The EBITDA estimates for 2015, 2016 and 2017 have been reduced by 12 percent to US$1,633mn, by 18 percent to US$1,412mn and by 23 percent to US$1,944mn, respectively. In the report BofA Merrill Lynch noted, "Investors should be prepared for substantial weakening of quarterly results over the next two quarters. Although we expect a seasonal recovery in 4Q15, this could be muted. Start of recovery exp. in 2016, although weighted towards 2H16."

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