On Wednesday, Citi analyst Ephrem Ravi adjusted the rating for UPM-Kymmene OYJ (UPM:FH) (OTC: UPMKY), elevating it from Neutral to Buy and increasing the price target significantly to €36.00, up from the previous €27.00. The revision is based on the anticipation of rising pulp prices, from which UPM-Kymmene is expected to greatly benefit.
Ravi’s analysis suggests that the company’s stock price has a strong correlation, approximately 70%, with pulp prices. According to Citi’s proprietary model, there is an expected supply deficit in the pulp market over the next three years. The firm believes that the potential for price growth in pulp is underestimated by the market, with consensus forecasts suggesting a 27% increase from trough to peak, compared to the historical average of 64%.
The analyst predicts that the actual price growth could more than double the current expectations, which would have a significant impact on UPM-Kymmene’s earnings before interest and taxes (EBIT). Citi’s forecasts for the company’s EBIT from 2025 to 2027 are approximately 10% higher than the consensus.
The report highlights UPM-Kymmene’s operations in Uruguay as a key competitive advantage, citing cost reduction and debottlenecking efforts that could add around €0.5 billion to the company’s EBIT. In light of these factors, UPM-Kymmene has also been added to the Citi European Focus List, indicating the firm’s confidence in the stock’s performance.
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