Morgan Stanley raised its rating on Neste Corp. to "overweight" from "equal-weight" and increased its price objective to €25 from €18.80, citing stronger-than-expected renewable margins and a balance sheet outlook that looks more flexible after a period of heavy investment in capacity.
Shares of the Espoo-headquartered refiner rose following the note, trading up 5.7% at 05:56 ET (10:56 GMT).
Margin assumptions and earnings implications
The brokerage said that consensus forecasts for renewable product margins in 2026 lag current spot-market levels. Morgan Stanley now models renewable margins of about $650 per tonne for most of fiscal 2026 - roughly 20% higher than consensus. According to the firm, that adjustment translates into about 17% upside to consensus renewable products EBITDA and roughly 7% upside to earnings per share in 2026 after taking into account weaker diesel crack spreads that pressure the oil products division.
Policy and regulatory factors
Morgan Stanley highlighted policy-driven demand in Europe and the potential for recovering U.S. renewable diesel margins as key pillars supporting the upgrade. The report noted expectations that European legislation will increase physical demand for hydrotreated vegetable oil (HVO). In the U.S., a pending Environmental Protection Agency decision on 2026 renewable volume obligations could lift prices for biomass-based renewable identification numbers (RINs).
The note included a sensitivity analysis: a move in RIN prices to $1.5 could boost U.S. renewable diesel margins by $150 to $200 per tonne, which the brokerage equated to about a 10% improvement in Neste's global spot margins.
Role of term sales and forward contracts
Morgan Stanley also emphasized how term sales can dampen margin volatility. Neste has not yet disclosed the share of its 2026 volumes that are sold on term contracts; historically, term sales have comprised 60% to 80% of volumes. The brokerage suggested that forward sales negotiated in the second half of the prior year could effectively lock in the majority of 2026 output at margins substantially above current consensus assumptions, supporting full-year profitability.
Balance sheet and capital allocation
Beyond margin dynamics, Morgan Stanley argued the market has not fully priced in Neste's balance sheet position following completion of the Rotterdam expansion. Net debt rose to about €4 billion by the end of 2024 after growth-related capital spending, the firm noted, but Neste expects leverage to come down as cash flow improves.
Under Morgan Stanley's base case, there is scope for increased shareholder payouts and elevated capital spending while still achieving reductions in leverage. Consensus estimates cited by the brokerage point to full debt repayment by the end of the decade.
Analysts' view and sector context
Analysts quoted by Morgan Stanley said near-term earnings momentum, underpinned by favourable renewable margin trends and an improving balance sheet, supported the upgrade despite the presence of ongoing policy and structural risks in the renewable fuels sector.