UBS Pulls Back on Neste, Citing 30% Rally That Packs In Regulatory Gains

UBS has switched gears on Neste (HE:NESTE), lowering its rating from buy to neutral. The reason? The stock's roughly 30% surge over the past two months has seemingly priced in the optimistic regulatory landscape that was expected to fuel Neste's growth, leading to a 2% dip in shares following the downgrade.Despite this, UBS bumped up its price target from €20.50 to €23, which doesn't leave much room above the recent closing price of €21.68. The stock now trades near its three-year average, sporting an enterprise value-to-EBITDA multiple of 8.3x-a sign that the market may have already digested much of the favorable news.The brokerage team points out that Neste's current share price roughly equates to a Renewable Products (RP) margin of about $580 per tonne. This is practically in line with their projections of $586 in 2026 and $602 in 2027, signaling that expectations might be well accounted for in the current valuation.Looking ahead to the firm's Q4 earnings report set for February 5, UBS expects a mixed bag. They forecast an RP margin of $408 per tonne for the quarter, which is below the consensus of $457. This variance is driven largely by heavy maintenance work that has constrained production capacity.Indeed, Neste's Rotterdam plant was offline for roughly half of Q4, with the Singapore facility also entering a turnaround period. Management previously hinted that these outages could knock up to $100 off the RP margin per tonne, influencing near-term profitability.UBS responded by trimming its 2025 earnings per share forecast by 18% to €0.53, reflecting headwinds from falling diesel prices impacting both renewable and conventional oil products. However, it lifted its 2027 EPS outlook by 21% to €1.96, banking on a rebound in RP margins further down the line.The analyst house expects RP margins to come in at $586 per tonne for 2026, topping the consensus of $546, though they admit there's quite a bit of unpredictability, especially regarding the mix between spot and term sales. Notably, spot margins have clocked around $900 year-to-date compared with roughly $550 for longer-term contracts.UBS also upgraded its view on renewable diesel and sustainable aviation fuel demand for 2026, anticipating a pickup following supply hiccups in 2025. While changes to European regulations-particularly in Germany-have reduced downside risks for the next couple of years, the overall risk-reward now looks balanced rather than skewed heavily positive.Neste runs renewable diesel operations across Europe, Asia, and the U.S., boasting a capacity of 5.5 million tonnes annually, alongside a large-scale refinery in Finland. The Finnish government still holds a significant stake of about 44%, anchoring government interest in the company.