Saudi Aramco Investors Should Cash Out Now, Bernstein Says
A low dividend yield and a bleak outlook for oil prices all point to a fair valuation for Saudi Aramco.
(Bloomberg) -- Saudi Aramco investors should take profit now after shares in the world’s biggest company jumped 10% in their first day of trading Wednesday, analysts at Sanford C. Bernstein & Co. recommended in a note to clients.
A low dividend yield, the political risk of the government still running the company, and a bleak outlook for oil prices all point to a fair valuation for Saudi Aramco that’s about 28% lower than the $1.88 trillion it reached after its first day of trading in Riyadh, Bernstein analysts including Neil Beveridge and Oswald Clint said in the Thursday note.
There may still be some short term upside because of index inclusion and the difficulty of shorting stocks on the Saudi Tadawul Stock Exchange, Bernstein said. The company jumped a second day on Thursday, pushing the oil giant beyond the $2 trillion valuation that Crown Prince Mohammed bin Salman set as a target more than three years ago.
“For investors who have benefited so far, we would take profit here,” Bernstein said in the note. “For those who have not, we would wait until a better entry point, which will inevitably come.”
The current valuation only makes sense with oil at $100 a barrel, so the downside will eventually materialize, it added. Brent crude on Thursday was trading near $64.
Bernstein initiated coverage of Aramco with the equivalent of a sell rating and a target price of 25.50 riyals, below the 35.20 riyal settlement on its first day of trading. On Thursday, the stock climbed by the daily 10% limit at the open to 38.70 riyals before trimming gains. It was up 7% at 37.65 riyals as of 9:49 a.m. London time.
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