Wells Fargo lifts LYB to Overweight with $105 target; May polyethylene contract price up 3 cents, first increase since January. Stock yields about 6.9%.
LyondellBasell Industries shares rose this week after Wells Fargo lifted its rating on the stock and polyethylene contract prices posted their first monthly increase since January.
Wells Fargo analyst Michael Sison upgraded LyondellBasell to Overweight from Equal Weight on May 28, setting a $105 price target. The target implies roughly 18% upside from the session's close. Sison cited better risk-reward after the stock's recent pullback, along with improving demand in packaging and construction markets and lower feedstock costs.
The same week, North American polyethylene contract prices for May settled up 3 cents per pound, the first monthly gain since January. The move reflected tighter supply after several producers cut operating rates in April, traders said. LyondellBasell, the world's largest polypropylene producer and a major polyethylene maker, benefits when resin prices rise faster than ethane and propane feedstock costs.
The company declared a quarterly dividend of $0.69 per share on May 22, paid June 8. The annualized payout of $2.76 yields roughly 6.9% at current prices. That yield is among the highest in the basic materials sector and has drawn income-focused investors even as the stock has lagged the broader market this year.
LYB shares are down about 8% year to date, underperforming the S&P 500. The chemical sector has struggled with weak demand in Europe and China and oversupply in polyethylene and polypropylene markets. LyondellBasell's first-quarter adjusted earnings per share dropped 12% from a year earlier, driven by thinner margins in its core olefins and polyolefins business.
The upgrade and the polyethylene price uptick offer a counter-narrative. If the May price increase holds through June and seasonal demand from construction and packaging firms picks up, LyondellBasell could see margin expansion in the third quarter. The company's own guidance for the second quarter, issued in April, called for sequentially higher earnings, supported by lower natural gas feedstock costs and improved volumes.
LyondellBasell carries an Alpha Score of 55 out of 100, a Moderate rating from AlphaScala. The stock sits near $89, about where it traded in early March. The next scheduled event is the company's second-quarter earnings report, expected in late July.
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