Tudor, Pickering, Holt on Friday maintained its buy rating on the shares of Methanex (MX.TO, MEOH) while raising its price target to US$51.00 from US$47.00 following third-quarter results from the methanol producer.
"We raise our Q4'24 EBITDA outlook to $219mm from $196mm (vs $219mm consensus) following MEOH's strong Q3 result of $216mm and guidance that Q4 EBITDA would look similar q/q. Our previous estimate had assumed that methanol prices would fall about -$30/tonne q/q in Q4 on new global supply adds in the US and Malaysia. However, MEOH's realized price is already up +$17/tonne q/q in Oct-Nov on the back of Atlantic Basin supply outages, steady global demand, and rising MTO operating rates. Management noted on the call that MTO op rates started Q3 at only 60%, but finished around 90%, a delta that is worth about +5mmt/yr (+5%) to global methanol demand. In addition, keep in mind that typically methanol tightens up as the winter progresses due to countries like China and Iran diverting natgas to residential heating from industrial applications. We model MEOH's legacy methanol production rising about +1.2mmt (+20%) in 2025 with tailwinds from the full year of G3, new gas supply contracts in China, and better gas supply in Egypt, slightly offset by switching to a smaller plant in Trinidad and the ongoing gas supply restrictions in NZ that has forced MEOH to run only one of its three plants. The OCI deal will bring additional production from the Beaumont and Natgasoline facilities starting in H2'25. On the valuation front, we see MEOH as an incredible bargain. The stock offers a phenomenal 19% FCF yield in 2025 even with methanol prices that are -$10/tonne vs this quarter's average. In contrast, the rest of the group only offer a 7% average FCF yield in '25 as muted chemical demand trends from 2024 are likely to persist into at least the early part of '25. Maintain Buy, raise target to $51 from $47, analyst Matthew Blair wrote.
(MT Newswires covers equity, commodity and economic research from major banks and research firms in North America, Asia and Europe. Research providers may contact us here: https://www.mtnewswires.com/contact-us)
Price: 57.50, Change: -0.44, Percent Change: -0.76
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