Goldman Sachs: Polyone Has 22% Return Potential

In a report published Monday, Goldman Sachs analyst Robert Koort upgraded the rating on

, while raising the price target from $37 to $41. The analyst believes that the stock offer 22 percent return potential. "POL shares have suffered the last few months punctuated by a meaningful drop in earnings growth expectations following 2Q2015 results and a consequent recalibration of its earnings path," Koort stated, adding, "However, we left a recent visit to POL's headquarters convinced that estimate revisions are likely bottoming and the demonstration of key organic growth is within reach." The company had targeted EPS of $2.50 for 2015, although the analyst believes that it could be 12 to 18 months behind schedule. However, once the company starts on its path to organic growth, the analyst expects investor confidence to be bolstered, which in turn would drive the shares up. The analyst expects PolyOne to begin to see improvement over the next 2-3 quarters in its Design Structures and Solutions business, driven by the new leadership at the division. "More importantly, across the company, we see the end of years of product pruning combined with an aggressive and successful innovation focus finally delivering underlying organic growth in 2016," Koort elaborated. However, there are also likely to be Fx headwinds to deal with, along with a decline in customer destocking in 2016. "We believe this evolution from primarily a margin expansion story to a more balanced sales and margin story will be critical to the performance of the shares," according to the Morgan Stanley report. PolyOne is also expected to use a significant portion of its free cash flow for share buybacks. The analyst believes that the company is potentially transitioning to a margin and growth story, with an expected return to EPS growth in the mid-teens in 2016.