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RBC Upgrades Dow Chemical, Removes LyondellBasell As Top Pick And Downgrades To Outperform

  • Shares of both LyondellBasell Industries NV (NYSE: LYB) and Dow Chemical Co (NYSE: DOW) are down 13 percent since January 4.
  • RBC Capital Markets’ Arun Viswanathan downgraded the rating for LyondellBasell from Top Pick to Outperform, while raising Dow Chemical from Outperform to Top Pick.
  • Sustainability of Dow Chemical’s above-market volume growth and margins make it more attractive than LyondellBasell, Viswanathan stated.


The price target for the company has been reduced from $105 to $95.

LyondellBasell’s strong exposure to the North American shale gas boom, robust organic growth through low-cost and high return buybacks and value return via buybacks and dividends make it an attractive investment option, analyst Arun Viswanathan said.

He added, however, that compression in the oil-to-gas ratio and oncoming NA ethylene capacity could potentially overshadow LyondellBasell’s positive features.

LyondellBasell’s 4Q EPS of $2.20 was marginally ahead of the RBC estimate of $2.10 as Americas and Europe O&P offset weaker-than-expected I&D segment results.

The EPS estimates for 2016 and 2017 have been reduced from $9 to $8.75 and from $10 to $9.50, respectively, to reflect lower I&D income and lower refining income.

Dow Chemical

The price target for Dow Chemical has been raised from $51 to $60.

The company’s robust 4Q15 results were boosted by one-time factors, Viswanathan mentioned. Dow Chemical recorded a 4 percent y/y volume growth excluding divestitures in 4Q15, versus a 2 percent increase in 3Q15.

Although the company faces some headwinds in 1H16, it has several positive features, including sustainable strong above-market volume and margin growth, a robust growth pipeline of EBITDA and benefits expected from its cost cutting efforts and merger synergies, the analyst stated.

The RBC Capital Markets report noted, “Dow provides strong above-market volume and margin growth that appears sustainable, a compelling 2-3 year EBITDA growth pipeline, and most different from LYB, a robust 12-18 month self-help backstop from cost cutting and merger synergies.”

Latest Ratings for LYB

Feb 2020UBSMaintainsNeutral
Jan 2020CFRAMaintainsStrong Buy
Dec 2019RBC CapitalDowngradesOutperformSector Perform

View More Analyst Ratings for LYB
View the Latest Analyst Ratings

Posted-In: Arun ViswanathanAnalyst Color Long Ideas Upgrades Downgrades Price Target Analyst Ratings Trading Ideas


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