Investing.com -- BASF SE (ETR:BASFN) has been downgraded by UBS to a "neutral" rating from a "buy,” signaling a shift in investor sentiment based on several macroeconomic and industry-specific challenges the company faces.

UBS analysts flagged concerns over the company’s earnings outlook for the coming years, particularly in 2025, which is expected to be another difficult year for the chemical giant.

The reassessment by UBS comes after a thorough review of BASF’s earnings trajectory over the next five years.

“We expect the next 12 months to be challenging for BASF reflecting lower global GDP growth in 2025, particularly in China and the US, continued low capacity utilisation and a weak ag end market,” said analysts at UBS in a note.

Weaker global GDP growth, compounded by overcapacity in upstream chemicals and low demand in agricultural markets, is set to hinder BASF's earnings recovery.

As a result, UBS has revised down its EBITDA forecasts for BASF by about 8% annually between 2024 and 2026.

The downgrade is largely influenced by a lack of visibility on earnings growth in the near term. UBS projects that BASF’s earnings growth in 2025 will be around 11%, a sharp decline from the previously anticipated 19%.

This, coupled with a lower dividend yield, now estimated at around €2.25 per share, makes BASF's shares less attractive compared to its peers.

The expected yield of around 5% is broadly in line with competitors, offering little upside for investors who previously saw the dividend as a key strength of BASF’s stock.

UBS also expressed concerns about BASF’s ability to navigate a difficult economic landscape, particularly in its crop protection business, which is expected to suffer as farmer incomes decline.

Farmers are likely to reduce spending on agricultural solutions, one of BASF's key segments, further dampening sales.

Additionally, upstream chemicals, another critical part of BASF's portfolio, are projected to face ongoing oversupply until at least 2026, keeping capacity utilization below optimal levels.

Additionally, UBS analysts cited the company’s trading position relative to its European diversified peers, noting that BASF's stock is currently priced at a premium to the average sector valuation, leaving limited room for upward revaluation in the short term.

The price target has been adjusted to €48 per share, down from a previous target of €51, reflecting a more conservative outlook on BASF’s future performance.

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BASF downgraded to 'neutral' by UBS amid earnings growth concerns for 2025