Chemtura's Future Execution Already Priced In, Baird Waiting For A Pullback

Baird downgraded Chemtura Corp CHMT to Neutral and is waiting for a pullback in shares to become more constructive on the name.

Shares have appreciated more than 9 percent in 2016 and Baird believes "the market is pricing in future execution at current levels, and feel anticipation for a potential merger or sale of the business are high."

"While there could be a deal, we think the transition could be complex, and note CHMT has been looking at options for over a year. Furthermore, given recent transaction multiples, it may be difficult for CHMT to justify a high-cost acquisition," analyst Ben Kallo wrote in a note.

At the same time, Kallo warned there could be a dilution in the shareholder base if a merger or sale of the business not announced in the intermediate term.

In addition, the analyst expects continued weak demand for clear brine fluids over the long term amid continued project cancellations.

However, Kallo projects 2017 adjusted EBITDA of $323.5 million, higher than consensus estimate of $310 million, and non-GAAP EPS of $2.12, above Street view of $2.10.

"We believe CHMT could exceed consensus estimates through sustained strength in bromine pricing, increased HVPAO production, and continued strong demand for petroleum additives. That said, we believe buy-side expectations may be higher than consensus estimates," Kallo added.

At time of writing, shares of Chemtura fell 3.86 percent to $28.63. The analyst maintained a price target of $33.