JPMorgan Downgrades Cabot Corp. To Neutral

JPMorgan’s Jeffrey J. Zekauskas downgraded the rating on Cabot Corp CBT from Overweight to Neutral, while raising the price target from $45 to $47.

Share Price Up

The stock has appreciated 18 percent year to date, as compared to a 1 percent decrease in the S&P average.

However, Zekauskas explained that this recent sharp rise in Cabot’s share price was unlikely to be indicative of any “fundamental positive changes in Cabot’s business conditions.”

In fact, the analyst vies this change “as consistent with the share price performances of many smaller-capitalization Chemical stocks in a, now, risk-on market environment.”

Related Link: Cabot Corporation Announces Resignation Of Prevost And Appointment Of Keohane As CEO

Estimates Revised

The EPS estimate for FY2016 has been raised from $3.05 to $3.15, to reflect higher expectations for volumes in the Reinforcement Materials business, along with a better outlook for the Purifications Solutions and Specialty Fluids businesses in 2HFY16.

The EPS estimates for FY2017 and FY2018 have also been raised due to the higher base for FY2016.

The free cash flow per share estimate for 2016 has been lowered from $3.30 to $2.86 to reflect a decrease in expectations for changes in the working capital, given the recovery in Brent crude oil prices in 2QFY16, which is expected to lead to higher inventory values.

Stock Not Overvalued

“We do not view Cabot shares as overvalued, given that they are capable of generating a ~6% free cash flow yield in 2016. We note, however, that higher free cash flow yields can be captured with Minerals Technologies shares or Orion Engineered Carbons,” the analyst added.