Commentary: $100/share price target for LyondellBasell

11 January 2013 11:32  [Source: ICB]

The rising tide of optimism over US shale gas is sweeping across Wall Street. Deutsche Bank analyst David Begleiter is putting a $100/share price target on the Netherlands-based petrochemical producer LyondellBasell, representing a 68% increase from current levels of around $60.

Even after the shares - traded on the New York Stock Exchange - rose by a blistering 88% in 2012 and the question arises: "Is it time to move on?", the emphatic answer from the analyst is: "We think not."

Begleiter sees additional capacity expansions, low feedstock ethane prices through at least 2016 and a petrochemical cycle peak in 2015-2016 resulting in $14bn (€10.6bn) in free cash flow for LyondellBasell for share buybacks.

"We believe Lyondell could earn $10/share in 2016 and see its shares reach $100," he said.

The prediction harks back to $100/share calls made by some analysts for DuPont in the late 1990s, when it was driving heavily into agricultural biotechnology. DuPont's stock was also at around $60 at the time.

It rose to a high of around $75 in 1998, falling far short of the mark. DuPont now trades at around $46/share.

The LyondellBasell call is purely hydrocarbon-driven - the dynamics are completely different. A price of $100/share by 2016 is plausible with the way things are shaping up. Yet one risk is that by then, investors may discount the flood of US ethylene capacity coming on in 2016-2017, resulting in a lower than 10 times multiple on earnings per share.

By: Joseph Chang
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