On Friday, JPMorgan resumed coverage on GrafTech International Ltd. (NYSE: NYSE:EAF), issuing a Neutral rating for the stock. The firm's analysis indicates that the company's shares have become more attractive following a 7% decline since the third-quarter earnings report on November 12, compared to a 2% increase in the S&P 500 Index and a flat performance in the SPDR Metals & Mining ETF.
The analyst noted that despite the structural oversupply in the graphite electrode market, there are several factors contributing to a more balanced risk/reward scenario for GrafTech.
These include the stabilization of pricing, the company's effective cost reduction strategies, and the anticipated influx of new capital later this quarter, which is expected to extend GrafTech's liquidity beyond 2025, thus reducing financial concerns.
InvestingPro analysis reveals that while the company carries a significant debt burden of $929 million, its current ratio of 3.79 indicates strong short-term liquidity position.
GrafTech's earnings may still be under pressure in the next three to six months, with InvestingPro data showing a significant revenue decline of 26% in the last twelve months and negative EBITDA of $25 million. However, the analyst anticipates that pricing could start to rise in early 2025.
With forecasted low double-digit growth in shipments for fiscal year 2025, the company is expected to see improved profitability in the latter half of the year due to better fixed cost absorption.
InvestingPro subscribers can access 12 additional key insights about GrafTech's financial health and market position through the comprehensive Pro Research Report.
The firm acknowledges the long-term potential benefits for GrafTech from the global shift towards electric arc furnace (EAF) steelmaking and the demand for western sources of needle coke and synthetic graphite. However, it cautions that these structural tailwinds may take years to materialize, although geopolitical tensions could accelerate the need for western sources.
The report also highlights risks such as excess capacity in China, imports from India, and potential tariffs on Mexican products. While the risk/reward balance has improved, the analyst expects GrafTech's shares to continue experiencing volatility until there is greater clarity on fundamental business trends and trade policies. This aligns with InvestingPro's assessment, which indicates the stock typically trades with high price volatility, having moved between $0.52 and $2.75 over the past 52 weeks.
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