Morgan Stanley raises BASF target price to €60 and maintains Overweight

Overview

This is a Morgan Stanley company research report on BASF after Q1 26 earnings and valuation update. The core conclusion is that supply disruptions from the Middle East conflict have changed the global chemicals cost curve, allowing BASF to benefit relatively in Asia and face lower import pressure in Europe, thereby improving short-term pricing power and earnings resilience. Based on better-than-expected Q1 26, latest spread moves, and mid-term normalization assumptions, the report raised earnings forecasts and lifted the target price to €60.

Core views

The core views of the report include: first, Q1 26 has already shown the early supply-chain effects of the Middle East conflict, and the impact is expected to persist into Q2; second, BASF's vertical integration and improved position on the European cost curve make it better able to benefit from spread widening; third, Morgan Stanley raised 2026e and 2027e EBITDA by 9.6% and 5.5%, respectively, while materially increasing EPS and FCF forecasts; fourth, if the Middle East conflict eases quickly, the market may quickly de-rate this supply-constraint phase, creating downside risk to the share price.

Analysis framework

The report combines analysis of earnings forecast revisions, spread monitoring, risk-reward scenarios, SoTP valuation, and DCF valuation. The target price uses a 50% weighting of both SoTP and DCF: SoTP of €69/share and DCF of €51/share, averaging to €60/share. It also estimates through-cycle value using a 2028e mid-cycle EV/EBITDA multiple and residual free-cash-flow estimates for 2026-2027, at approximately €56.9/share.

Methodology notes

• Valuation methodsSoTP + DCF

  The target price is derived from the average of segment valuation and discounted cash flow

  Morgan Stanley averages a SoTP valuation of €69/share and a DCF valuation of €51/share at 50% weight each to derive a €60 target price; DCF uses a 7.2% WACC and a 1.3% terminal growth rate.

• Valuation methodsEV/EBITDA Mid-cycle Valuation

  Use 2028e mid-cycle EBITDA and residual cash flow to assess through-cycle value

  The report applies an approximately 7.6x EV/EBITDA multiple to 2028e EBITDA and adds residual cash from the 2026-2027 supply-constrained period, yielding indicative through-cycle value of about €56.9/share.

• Scenario AnalysisRisk Reward

  Bull, base, and bear price scenarios

  The base case is €60, the bull case is €66, and the bear case is €34; option-implied probabilities are used to help assess the likelihood of reaching each price scenario over the next 12 months.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BASF equity / BASFn.DE

  Core covered security

  Strengths

  Vertical integration, declining European import pressure, stronger short-term pricing power, improving FCF and net debt metrics.

  Weaknesses

  Demand-side remains impacted by weakness in end-markets such as autos and construction, and some businesses such as Chemicals and Materials still have downward estimate revisions.

  Comparison

  Morgan Stanley 2026e EBITDA is about 11.8% above Visible Alpha consensus, 2026e EPS is about 47.0% above consensus, but 2027e EPS is about 15.3% below consensus.

  Risks

  Middle East conflict easing, rapid normalization of raw material costs in Asia, demand damage, adverse moves in European energy prices, and new-plant profitability not meeting expectations.

• European Chemicals sector

  Industry backdrop and relative cost curve

  Strengths

  Supply disruption could ease European import pressure and allow upstream players to gain spread and pricing power on a temporary basis.

  Weaknesses

  The sector still faces cyclical demand uncertainty, energy-cost risk, and global capacity competition.

  Comparison

  BASF is seen as one of the upstream beneficiaries, but the sector view remains In-Line.

  Risks

  Cost advantage fading, demand remaining weak, and spread compression.

Key data

• Target price change€58.00 -> €60.00BASF target price was raised.
• RatingOverweightSector view is In-Line.
• Current share price€53.46As of 2026-05-11 close.
• 2026e EBITDA€7,906mRaised 9.6% from the prior estimate of €7,215m.
• 2027e EBITDA€7,529mRaised 5.5% from the prior estimate of €7,138m.
• 2026e EPS€3.45Raised 43.2% from the prior estimate of €2.41.
• 2026e FCF€3,936mRaised 78.0% from the prior estimate of €2,212m.
• 2026e net debt€12,624mNet debt/EBITDA is about 1.6x.
• SoTP valuation€69/shareBusinesses such as Coatings and Ag Solutions are valued using peer multiples.
• DCF valuation€51/shareUses WACC 7.2% and terminal growth rate 1.3%.

Impact & implications

For investment implications, the report frames BASF as an upstream beneficiary in European chemicals from supply disruption and cost-curve changes. Near-term catalysts come from Q2 pricing power, MDI/TDI spreads, cracker spreads, and the absence of obvious demand damage; over the medium term, if cash-flow improvement is delivered, lower net debt and capital returns could support valuation. However, this thesis is highly dependent on supply constraints persisting, raw material costs not rising to the level that would damage demand, and raw material costs in Asia not normalizing quickly.

Risks

• If the Middle East conflict is resolved, the supply-constrained thesis may be quickly faded by the market.
• If raw material costs rise to demand-destructive levels, profit normalization would be weakened.
• If Asian raw material costs normalize faster than expected, BASF's relative cost advantage would weaken.
• If end demand in autos and construction remains disappointing, revenue and spread improvements could fall short of expectations.
• If new-plant profitability does not meet expectations, medium-term profit and cash flow would be affected.
• If free cash flow is weak, the market may question capital return capability.

What to watch

• 2Q26 spread and volume trends, especially the actual impact of supply constraints on prices and demand.
• MDI and TDI spreads, cracker spread, and European energy prices.
• Whether Asian raw material supply and costs normalize quickly.
• Whether 2026e EBITDA reaches €7,906m and FCF reaches €3,936m.
• The path of net debt reduction and sustainability of capital returns.
• Progress on the Middle East conflict and its impact on the global chemicals supply chain.