BASF SE shares fell more than 2% on Thursday after Barclays lowered its rating on the German chemicals group to "underweight" from "equal weight," assigning a price target of €40. That target implies roughly a 21% decline from the stock's closing price on Feb. 17 of €50.62.
Barclays said the 14% year-to-date rise in BASF's share price reflected short covering and repositioning rather than a clear improvement in the company's underlying earnings trajectory.
Earnings and forecasts
The brokerage trimmed its adjusted EBITDA estimate for 2026 to €6.82 billion when excluding the Coatings business, a figure about 3% below the Bloomberg consensus near €7.02 billion. When Coatings is included, Barclays's 2026 adjusted EBITDA estimate rises to €7.2 billion.
The downgrade followed BASF's full-year 2025 profit warning. Barclays noted the profit warning implied a fourth-quarter EBITDA excluding Coatings of €1.08 billion, which the bank characterized as the weakest fourth-quarter performance in a decade.
Applying historical seasonal patterns to that exit run-rate, Barclays advised that FY26 EBITDA could fall into a range of approximately €6.15 billion to €6.45 billion, materially below both its own base case and the consensus view. Those estimates incorporate the potential addition of roughly €300 million in EBITDA from the ramp-up of the Zhanjiang site and an estimated €170 million equity-method gain tied to a minority stake disposal.
Valuation and capital returns
Barclays pointed out that BASF currently trades at 17x one-year forward price-to-earnings and around 9x forward EV/EBITDA. Both multiples sit above their respective 10-year averages of about 13x for P/E and 7.5x for EV/EBITDA. The bank observed that these premiums are difficult to reconcile with BASF's projected 2026 free cash flow yield of 1.4%, net debt to EBITDA of 2.7x and return on invested capital of 2.5% - all metrics that Barclays notes are below peer averages of 3.5% free cash flow yield, 1.8x net debt/EBITDA and a 3.7% ROIC.
Policy and cost headwinds
Barclays also challenged the market narrative that recent political signals amounted to a structural tailwind. The bank cited reporting on potential European Commission adjustments to the EU Emissions Trading System, which had been viewed by some market participants as easing the transition away from free CO2 allowances.
Rather than being unambiguously positive for BASF, Barclays argued the discussion underlines a previously underappreciated structural cost headwind. Barclays contrasted Bloomberg consensus expectations - which it said assumed approximately 250 basis points of EBITDA margin improvement for BASF between 2025 and 2029 as free allowances fall away - with the company’s own guidance that the ETS could represent an annual cost headwind in the range of €60 million to €190 million, equivalent to roughly a 90 to 300 basis point drag on EBITDA.
At full phase-out in 2034, Barclays estimated BASF's total annual ETS costs could rise to about €1.02 billion, up from roughly €245 million today.
China ramp-up and market backdrop
Barclays cautioned that BASF’s major new investment in China - the Zhanjiang Verbund complex - is coming online into a weakening demand and utilization environment. The site’s advertised capacities include a 1 million ton-per-year steam cracker, 830,000 tons per year of ethylene oxide capacity and 500,000 tons per year of polyethylene capacity.
The bank referenced forecasts showing Chinese ethylene utilization falling from 82% in 2025 to 75% by 2030 and HDPE utilization declining from 84% in 2025 to 74% by 2031. Barclays highlighted recent HDPE margins averaged negative $53 per tonne in recent years, a sharp contrast with the $418 per tonne average seen during the 2014-21 supercycle, citing industry data cited in its report.
Barclays also pointed to the collapse in profitability at BASF’s Nanjing joint venture with Sinopec as a cautionary signal. Earnings from that venture dropped from €675 million in 2021 to €2 million in 2024, which the bank suggested offers a weak read-across for the prospective returns from Zhanjiang.
On the specific earnings contribution from the new complex, Barclays estimated Zhanjiang would generate between €200 million and €300 million of annual EBITDA at full ramp. That estimate sits well below BASF's own stated ambition of €1 billion to €1.2 billion and also below consensus expectations of about €600 million by 2028.
Market reaction and context
Following Barclays's downgrade and adjusted forecasts, shares of BASF dropped more than 2% on the trading session referenced. Barclays' note emphasized valuation, deteriorating market dynamics in China and the potential for escalating emissions costs as key reasons the stock no longer merits an equal-weight designation in the bank’s view.
Key points
- Barclays downgraded BASF to underweight with a €40 target, implying roughly 21% downside from a €50.62 close on Feb. 17.
- The bank cut 2026 adjusted EBITDA to €6.82 billion excluding Coatings and warned FY26 EBITDA could be as low as €6.15 billion to €6.45 billion after applying seasonal patterns to the weak Q4 exit rate.
- Barclays flagged valuation, EU emissions cost risk and the Zhanjiang ramp into a softer Chinese market as material headwinds to earnings and returns.
Risks and uncertainties
- Policy risk - changes to the EU Emissions Trading System could increase BASF’s annual ETS costs toward an estimated €1.02 billion by full phase-out in 2034, heightening structural cost pressure.
- Market demand risk in China - weakening ethylene and HDPE utilization and negative recent HDPE margins could undermine returns at the new Zhanjiang Verbund site.
- Execution and ramp risk - Barclays's estimate for Zhanjiang EBITDA at full ramp of €200 million to €300 million is substantially below BASF's targets, creating downside to consensus earnings expectations.