Bank Of America Downgrades Stillwater Mining To Underperform: Here's Why

In a report published Wednesday, BofA Merrill Lynch analyst Matthew Griffiths downgraded the rating on

from Buy to Underperform, while reducing the price target from $14.50 to $9.60, following union opposition to the company's cost cutting targets. "Stillwater Mining announced this morning that the union employees at the Stillwater Mine and Columbus processing facility have again failed to ratify the tentative labor agreement reached on May 27, 2015," analyst Matthew Griffiths said. Continued failed attempts to ratify new contracts could increase the risk of a production suspension at the Stillwater mine. This accounts for 34.6 percent of the BofA Merrill Lynch estimate of the company's NAV. The P/NAV multiple has been reduced from 1.0x to 0.8x to reflect the increased risk. Griffiths commented, "The previous labor contract with employees at these sites expired at midnight on June 12, 2015…The represented employees continue to work under the terms of the expired contract. If a strike does occur and lasts the remainder of 2015, we estimate the impact on EPS to be -35.2% ($0.35 from $0.54) and EBITDA to be -37.3% ($99mn from $157.9mn)." Stillwater Mining is focusing on cutting costs due to the recent decline in commodity prices in general and in palladium price in particular, the report explained.