UPDATE: Jefferies Upgrades Ashland

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Jefferies upgraded Ashland Inc ASH Monday from Hold to Buy and raised its price target from $123 to $147.

Analysts led by Laurence Alexander noted that Ashland benefits from falling crude oil prices. “Base oil prices have dropped to ~ $3.00/gal from $3.50-$3.75/gal in June. Ashland buys ~170m gpy of mostly Group II & III base oils, and we estimate a $0.10/gal price cut translates into an annualized tailwind of $0.15/share.”

According to Alexander, “Tailwinds to Valvoline in 1H15 should be followed by improved organic growth in ASI as consumer demand benefits from a tailwind to disposable income.

“The Valvoline spin scenario will also likely come back into play as ASI prospects improve. In the absence of strong end-market acceleration to provide a hook for thematic investors, we expect an increase in the level of interest in formulation-driven specialty chemical models that are arguably more market relevant, asset-lite, FCF generative and sustainable in the face of emerging markets competition. This dynamic should also be supportive of relative valuations,” according to the analyst report.

The report concluded that ”key risks include declining miles driven per capita (for Valvoline), emerging market economic volatility impeding growth for ASI, or adverse shifts in consumer products R&D cycles.”

Ashland recently traded at $115.30, up 1.1 percent.

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Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsJefferiesLaurence Alexander
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