UPDATE: Goldman Sachs Reiterates Neutral Rating, Raises PT on Kraton Performance Polymers on 2013 Earnings Improvement

In a report published Friday, Goldman Sachs reiterated its Neutral rating on Kraton Performance Polymers KRA, and raised its price target from $23.00 to $26.00. Goldman Sachs noted, “The past three years have been erratic for KRA margins, which have been whipped around by the combination of feedstock price volatility, the company's choice of FIFO accounting, and KRA's large amount of inventory. As a result, EBITDA margins of 15.6% in 2010 were cut in half to 7.5% in 2012 as feedstock prices deflated. The feedstock volatility also potentially contributed to volume weakness (1% 2010-12 volume CAGR) as customers were incentivized to destock inventories into falling prices. With that as a backdrop, the outlook for 2013 is significantly better than where KRA started 2012. Feedstock prices, particularly butadiene, are bottoming and have showed significantly less volatility of late after the sharp swings in 2011-12 (Exhibit 1). In 2013 we expect relatively modest and steady inflation in feedstock prices throughout the year that should enable KRA to pass through rising costs more effectively than in years past. This should lead to higher gross margins per ton, which we think could reach management's goal of $1,000/ton as KRA records FIFO gains in 2013 from inflation rather than the losses reported in 2012.” Kraton Performance Polymers closed on Thursday at $24.04.