Methanex ( NASDAQ: MEOH ) on Monday was upgraded to Sector Outperform from Sector Perform by analysts at Scotiabank because the methanol producer's valuation is compelling after a significant selloff.
“We offer no elaborate multi-pronged thesis to our upgrade,” Ben Isaacson, analyst at Scotiabank, said in the Sept. 26 report. “It’s fairly straightforward: valuation has moved so far offside from fair value, MEOH is no longer pricing in a reasonable bear case.”
The company’s average 10-year EBITDA, excluding 2020 when the pandemic started, is $750 million when the weighted-average sales price of methanol is $350 a metric ton.
Using a five-year average enterprise value-to-EBITDA multiple of 7.3 times leads to a stock price of $49 a share, or 70% higher than the current price, according to Scotiabank.
The bank had downgraded Methanex to Sector Perform in May on concerns that a global recession would dampen demand for methanol.
"We had no intention of upgrading MEOH so soon after our May downgrade, but the stock is down more than 40% over the past four months on little more than macro warnings," the report said. "During this time, the spot methanol market has hung in very well."
Methanex also has the possibility to increase its earnings when its Geismar 3 (G3) methanol plant starts operating by the end of 2023. Methanol is used to make other chemicals and as a fuel.
Methanex this month announced Rich Summer will become president and CEO in January, succeeding John Floren, who plans to retire.
Seeking Alpha contributor Macrotips Trading rates Methanex ( MEOH ) as a Hold because of concerns about methonal prices .
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Methanex upgraded to Outperform at Scotiabank with 70% possible upside