On Tuesday, Citi increased its share price target on Evonik Industries AG (EVK:GR) (OTC: EVKIF) to €25.00 from the previous €24.00, while reaffirming a Buy rating on the stock.
The adjustment reflects the analyst's view that Evonik is poised to maintain its superior earnings momentum, bolstered by a positive shift in the sentiment within the German chemical industry. This shift suggests there may be additional upside to the company's second-quarter EBITDA.
The Specialty Additives segment is highlighted as the primary contributor to the analyst's forecast, which stands 4% above consensus. The expectation is that Evonik's management will likely revise the full-year outlook upwards. The new projection of €2.04 billion in earnings, an increase of 2%, is 5% higher than the Vara consensus.
While the analyst adopts a slightly more cautious stance on the 2025 prices for methionine, a key product for Evonik, this concern is expected to be outweighed by decreasing energy costs as the company's hedging contracts expire. The analyst believes that the market has not yet fully appreciated the potential impact of these lower energy costs.
The report concludes that, with Evonik on track to return to mid-cycle earnings in the following year, supported by significant self-help measures, and with the share overhang from RAG Foundation having largely dissipated, the stock's valuation at a 9% free cash flow yield is considered undervalued.
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