Deutsche Bank Starts LyondellBasell Industries (LYB) at Buy; Valuation Compelling

Deutsche Bank initiates coverage on LyondellBasell Industries (NYSE: LYB) with a Buy. PT $40.00.

Deutsche analyst says, "While 21% above their October lows, LyondellBasell shares are 36% below their May highs on concerns over slowing economic growth, lower (but still healthy) ethylene margins and the sustainability of the US ethane advantage. We believe concerns over the ethane advantage are unwarranted as supply should increase 40% over the next 3 years and push prices lower."

"LyondellBasell is a cash machine. In 2012-13, based on our EPS estimates of $4.15 and $5.95, respectively (vs consensus of $4.53 and $5.21), we estimate free cash flow (cash from ops - capex) will total $5B, or $8.40/shr, with a 2-yr free free cash flow yield of 29%. This cash, along with $4.5B of cash on the balance sheet, will be used to pay down up to $3B of high cost (11%) debt and fund capacity expansions, further improving LyondellBasell’s financial flexibility and earnings power. We expect net debt to be $0 by year-end vs $6.4B at year-end 2009."

For more ratings news on LyondellBasell Industries click here and for the rating history of LyondellBasell Industries click here.

Shares of LyondellBasell Industries closed at $29.20 yesterday.

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