CFRA took a bearish stance on Umicore SA (UMI: BB) (OTC: OTC:UMICY), downgrading the stock from Sell to Strong Sell and slashing the price target to €10 from €14.
The firm, in a note published on Friday, cited a weaker outlook for the company's electric vehicle (EV)-related businesses and sensitivity to platinum group metal (PGM) prices as the reasons for the downgrade.
Umicore's financial performance in the first half of 2024 was underwhelming, with revenues dropping to €1.8 billion compared to €2.1 billion during the same period in the previous year. This decline was attributed to less favorable PGM prices, a sluggish EV market outside of China, and rising costs. The company's adjusted EBIT fell by 36% to €241 million, and EBITDA decreased by 24% to €393 million.
The EV market's growth has notably decelerated, with battery electric vehicle (BEV) growth in the first half of 2024 at 11%, a stark contrast to the 36% and 73% growth rates experienced during the same periods in 2023 and 2022, respectively. This slowdown has impacted Umicore's business, which is closely tied to the EV sector.
Despite these challenges, CFRA is maintaining its below-market earnings per share (EPS) estimates for Umicore for the years 2024 and 2025 at €1.45 and €1.50, respectively. The new price target of €10 suggests a valuation of 6.9 times the projected 2024 earnings and an enterprise value to EBITDA (EV/EBITDA) multiple of 4.7 times, which represents a significant discount compared to the company's two-year average multiples of around 15 times and 8 times for P/E and EV/EBITDA, respectively.
On the contrary, JPMorgan upgraded the stock from Underweight to Overweight, adjusting the price target to €16.50 from €22.50, reflecting the challenges faced by Umicore's battery materials division.
In contrast, Deutsche Bank reduced Umicore's price target to EUR16.00 from EUR21.00, keeping a Hold rating on the stock. The adjustment followed Umicore's significant reduction in its 2024 guidance for its crucial Battery Materials segment.
Goldman Sachs also reduced Umicore's price target to €14.40 from €19.00, maintaining a Sell rating, citing concerns about the growing presence of LFP batteries in the market and Umicore's valuation.
Lastly, Citi downgraded Umicore from Buy to Neutral, significantly reducing the stock price target to €22.00 from €40.00, following the unexpected resignation of the company's CEO and Chief Strategy Officer.
InvestingPro Insights
Amidst the market's bearish outlook on Umicore SA, the InvestingPro platform sheds light on several key metrics that investors might consider. With a market capitalization of $3.48 billion and a P/E ratio that has adjusted to a more modest 7.76 from the last twelve months as of Q4 2023, Umicore appears to be trading at a low revenue valuation multiple. This aligns with one of the InvestingPro Tips, which suggests that the company is trading at a low revenue valuation multiple, potentially indicating an undervalued stock in the eyes of some investors.
Furthermore, despite the decline in revenue growth, the company's dedication to shareholder returns is evident, having maintained dividend payments for 27 consecutive years, with a notable dividend yield of 6.0% as of 2024. This commitment to consistent dividend payments, even in the face of industry challenges, could be a silver lining for income-focused investors. Additionally, Umicore's gross profit margin stands at 8.32%, which, while on the lower side, still points to the company's ability to maintain profitability over the last twelve months.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips on Umicore, including the anticipation of a sales decline in the current year and insights into the company's profitability. With these considerations in mind, potential investors can explore further with a special offer: use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking access to a total of 9 InvestingPro Tips that could help in making an informed investment decision.
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