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Yara stock faces hurdles with elevated EU gas prices and limited upside catalysts

EditorEmilio Ghigini
Published 2025-01-07, 03:00 a/m

YAR
0.68%

On Tuesday, JPMorgan (NYSE:JPM) reaffirmed its Underweight rating on Yara International ASA (YAR:NO) (OTC: OTC:YARIY) stock, with a price target of NOK280.00. JPMorgan analysts cited structural cost disadvantages for Yara, as the company's nitrogen fertilizer production is predominantly based in Europe where natural gas prices are higher compared to other regions.

This factor, along with expectations of a balanced to looser nitrogen fertilizer market, is anticipated to constrain the upside potential of Yara's financial performance in the coming years.

The analysts projected flat earnings for Yara, with forecasted adjusted EBITDA for the fiscal years 2024, 2025, and 2026 at $2.1 billion, $1.9 billion, and $2.0 billion, respectively. These figures represent a slight increase for 2024 but a decrease for the following years compared to Bloomberg consensus estimates.

Additionally, free cash flow estimates (FCFE) for fiscal years 2025 and 2026 are expected to be near zero, approximately 1% FCFE yields, due to elevated capital expenditures (capex).

In response to these challenges, Yara initiated a strategic review of its European assets in 2024 and has committed to optimizing operating expenses and capital expenditures. The company also anticipates benefiting from the rollout of the European Union's Carbon Border Adjustment Mechanism (CBAM) starting in 2026, which could improve margins for nitrate upgrading in the midterm.

Despite these potential opportunities, JPMorgan analysts remain cautious, noting that the benefits from these strategic changes are uncertain and will likely take time to have a significant impact. The price target of NOK 280 is set for December 2026, extended from the previous target date of June 2026.

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