This pipe manufacturer can rally more than 45%, Jefferies says

Published Thu, Jun 29 202311:41 AM EDTUpdated Thu, Jun 29 202312:31 PM EDT

It's the right time to buy into beat-down Tenaris , Jefferies said. Analyst Jamie Franklin initiated coverage of the steel producer known for its pipes business at a buy rating. His price target of $41.80 for U.S.-listed shares implies upside of 46.6%. U.S.-listed shares were up nearly 3% Thursday. Despite the gain, the stock is still down nearly 16% year to date. That marks a turn from gains of about 31% and 69% seen in 2021 and 2022, respectively. TS 5Y mountain U.S. shares of Tenaris over the last five years "With through-cycle profitability that is unparalleled in Euro Oilfield Services and a growing net cash balance, TEN offers leading US OCTG exposure with a compelling risk/reward skew despite US OCTG pricing normalisation headwinds," Franklin wrote in a note to clients, using the acronym for oil country tubular goods. The stock is listed under the ticker TEN in Milan. U.S. pricing presents a headwind and is expected to stabilize until 2024, the analyst said. But international pricing is improving, and the company had nearly 40% of sales outside North America in 2022, according to Jefferies. Franklin said Tenaris has a remarkable operational delivery record, with EBITDA margins over 20% on average in the last decade. While those margins may feel pressure with rising U.S. prices, they could still come in between 30% and 40% for 2023 and 2024 but may fall into the range between 20% and 30% in 2025. Tenaris' excess cash has given it downside support and allowed it to snap up merger and acquisition targets at the best times, Franklin said. The company has maintained a net cash position while paying a dividend every year since its listing in 2002. Franklin anticipates a payment of 60 cents per share in 2023 and beyond, up from the 51 cents per share seen last year. Though the price target puts it at a premium to Vallourec S.A ., Franklin said the company has historically traded at a premium because of its earnings quality, balance sheet and consistency of returns. He also noted that both are at 10-year lows when looking at enterprise value to EBITDA. — CNBC's Michael Bloom contributed to this report.