LYB LyondellBasell
Buy the cycle, not the spreadsheet: LYB at trough margins, valued at boring 7% mid-cycle chemistry.
The story
LyondellBasell is a large-scale commodity petrochemical producer (olefins, polyolefins, intermediates) sitting near the bottom of a brutal downcycle: European demand weakness and a wave of Chinese capacity have crushed margins from 10% to roughly breakeven. There is no durable moat; the 'story' is pure cyclicality — margins mean-revert to mid-cycle chemical economics as supply rationalizes and the drag from the closed Houston refinery fades. This is a mature, capital-intensive business where value comes from normalized earnings, not growth.
Revenue grows ~2% early (refinery-exit drag offset by modest volume/price stabilization) fading to 1.5% terminal, below the 5.01% risk-free rate, reflecting GDP-tethered chemical demand with structural overcapacity. Operating margin recovers from ~1.6% to a 7% mid-cycle level over 6 years — consistent with LYB's pre-boom history, not the 10-12% 2021-22 peak — because commodity petrochemicals earn cost-of-capital-plus over a cycle. Sales-to-capital of 1.3 and beta of 1.15 acknowledge heavy capital intensity and cyclical risk; low 3% failure probability reflects solid cash position despite $9.5B net debt. These drivers imply intrinsic value near the $65 market price — a cyclical trough valuation with modest upside, not a screaming bargain.
Value drivers
| Revenue growth (Y1) | 2.0% |
| Terminal growth | 1.5% |
| Forecast horizon | 8y |
| Target operating margin | 7.0% |
| Years to target margin | 6 |
| Sales-to-capital | 1.30 |
| Beta | 1.15 |
| Failure probability | 3.0% |
| Cost of capital (WACC) | 9.6% |
| Terminal WACC | 9.2% |
Valuation bridge
| PV of explicit FCFF | 4.77B |
| PV of terminal value | 10.49B |
| Equity value | 5.36B |
| ÷ shares → per share | $16.60 |
News
neutral +0.10 · 8 articles
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- Why Is Albemarle (ALB) Up 5.4% Since Last Earnings Report?
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- LyondellBasell Industries (LYB) Draws Shell Chemicals Bid Attention On An Undervalued View
- US Equity Markets Higher as Crude Oil Prices, Bond Yields Drop After US Treasury Threatens Economic Sanctions on Iran
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 31.82B | 2.0% | 2.5% | 618.91M | 479.88M | 139.04M | 126.84M |
| 2 | 32.43B | 1.9% | 3.4% | 863.35M | 471.99M | 391.36M | 325.72M |
| 3 | 33.03B | 1.9% | 4.3% | 1.12B | 463.28M | 652.92M | 495.75M |
| 4 | 33.62B | 1.8% | 5.2% | 1.38B | 453.73M | 923.45M | 639.66M |
| 5 | 34.20B | 1.7% | 6.1% | 1.65B | 443.36M | 1.20B | 759.97M |
| 6 | 34.76B | 1.6% | 7.0% | 1.92B | 432.17M | 1.49B | 859.03M |
| 7 | 35.31B | 1.6% | 7.0% | 1.95B | 420.17M | 1.53B | 805.88M |
| 8 | 35.84B | 1.5% | 7.0% | 1.98B | 407.38M | 1.57B | 755.39M |
Key risks
- Sustained Chinese/global petrochemical overcapacity delaying margin recovery into 2027+
- Structurally weaker European demand and energy costs impairing the I&D segment
- High net debt at cycle trough forcing dividend cuts and constraining reinvestment
Catalysts
- Industry capacity rationalization and cyclical upturn lifting margins toward mid-cycle
- Self-help: cost reduction, profitable growth projects, and clean exit of refinery losses
- High dividend yield (~6%+) attracting income capital once cash flows normalize