On Thursday, Deutsche Bank adjusted its stance on Cabot Corp . (NYSE:CBT) stock, shifting the rating from Buy to Hold, while increasing the price target to $95 from the previous $88.
The action follows a significant rise in the company's share value, which has climbed 29% since the release of its first fiscal quarter results earlier this February, outpacing the S&P's growth of 2% in the same period.
The stock's performance has also surpassed its peers in the U.S. Chemicals sector, which saw a 7% increase, and its pure-play carbon black peer Orion, which experienced a 10% rise. Cabot's current trading at 7.9x next twelve months (NTM) EBITDA represents a premium compared to both its three-year average NTM EV/EBITDA multiple of 7.0x and Orion's valuation.
Deutsche Bank acknowledges the reasons behind Cabot's stock appreciation, citing strong results and improved fundamentals in the company's Reinforcement Materials (RM) segment. The forecast for RM EBITDA is nearly 90% above the pre-pandemic levels of 2019. This surge is attributed primarily to three consecutive years of robust pricing gains, which were influenced by the ongoing Russia-Ukraine conflict.
Despite the positive outlook on RM's ability to sustain or slightly improve results, Deutsche Bank anticipates more modest single-digit EBITDA growth in the years 2025 and 2026. The uncertainty surrounding the future, particularly the potential end of the Russia-Ukraine war, poses questions about the sustainability of these earnings.
The war's resolution could range from maintaining the status quo, which would be very positive for Cabot, to a scenario where market conditions revert to pre-war levels, which would be less favorable.
The bank's analysis concludes that with RM earnings above trend-line levels, a slow recovery in Performance Chemicals, and a valuation that exceeds historical averages, the near-term upside potential for Cabot's shares appears limited. This assessment has led to the revised rating and price target.
InvestingPro Insights
Recent data from InvestingPro shows that Cabot Corp. (NYSE:CBT) is demonstrating financial metrics that could be of interest to investors. The company's market capitalization stands at a solid $5.1 billion, with a price-to-earnings (P/E) ratio of 11.81, which adjusts slightly to 11.6 when looking at the last twelve months as of Q1 2024. This P/E ratio is particularly noteworthy when paired with the company's near-term earnings growth, suggesting that the stock could be trading at an attractive valuation. Additionally, the PEG ratio, a metric that relates the P/E ratio to the company's earnings growth rate, is 0.46 for the same period, indicating potential undervaluation relative to its earnings growth.
Investors may also find the company's consistent dividend payments reassuring; Cabot has raised its dividend for 12 consecutive years and maintained payments for 54 years in a row. The dividend yield as of the latest data is 1.74%, with a recent growth of 8.11% in the dividend amount. Furthermore, the stock has experienced a strong return over the last three months, with a price total return of 23.72%, and a notable six-month price total return of 33.3%, reflecting a large price uptick.
For those considering a deeper dive into Cabot Corp., there are additional InvestingPro Tips available that could further inform investment decisions. For example, the company's management has been actively engaged in share buybacks, which can often be a sign of confidence in the company's value. Also, the stock generally trades with low price volatility, providing a level of stability for investors. There are 13 additional InvestingPro Tips available, which can be accessed for a more comprehensive analysis. To take advantage of these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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