JPMorgan Cuts Cemex Rating to Neutral

Investing.com — JPMorgan has downgraded Cemex from Overweight to Neutral, citing a lack of upcoming catalysts and disappointing third-quarter results.

Analysts pointed out that despite Cemex’s attractive valuation on an EV/EBITDA basis, the company's free cash flow (FCF) generation and near-term earnings outlook pose challenges.

JPMorgan noted, "We see no significant fundamental catalysts until at least mid-February." They expect subdued fourth-quarter results and limited visibility into 2024.

Moreover, the analysts highlighted that investors' hopes to see growing dividends or meaningful buybacks could be unmet.

JPMorgan believes that the current FCF generation is inadequate to support both growing dividends and reasonable buybacks, which are currently important to investors.

They estimate that Cemex will generate $300-350 million in FCF next year, leading to a yield of 3.8-4.4%, after considering growth capital expenditures and other costs.

With limited cash post-dividends, JPMorgan remarked, "There seems to be low interest" from Cemex in activating its $500 million buyback program, despite a projected leverage level of 1.7x by year-end.

JPMorgan expressed further concern that Cemex may be nearing the peak of its earnings cycle. Estimates for next year may face downward pressure, particularly from Mexico and the US, which make up 73% of the company's EBITDA.

The bank also indicated that any potential EBITDA growth through new capital expenditures would likely be minimal in the initial years of deployment.

Although Cemex’s long-term strategic focus on Mexico, the US, and Europe is viewed positively, JPMorgan believes the near-term outlook is limited.