Baird Upgrades Cabot Corp.: 'We Believe Valuation Remains Attractive'

Cabot Corp CBT is likely to benefit from favorable market conditions, according to Baird. 

The Analyst

Analyst Ben Kallo upgraded Cabot from Neutral to Outperform and increased the price target from $67 to $72.

The Thesis

The recent tailwinds in the carbon black market — such as competitor curtailments in China, increasing demand and tight supply — are "structural in nature," Kallo said in a Wednesday note. 

Baird forecast continued strength in the market, with Cabot indicating persistently strong market conditions through 2018.

The company could gain from price increases that are triggered by tight supply as customers scramble to secure reliable supply for 2019 and beyond, Kallo said. 

Cabot was able to enact price increases in its performance chemicals segment, as well as sequential volume growth thanks to the Tech Blend acquisition and momentum in new products and applications, the analyst said. 

A sale of the purification solutions segment is likely in order to facilitate positive cash flow, Kallos aid. Although a potential transaction may not be beneficial in the near term, a deal could materialize in the long term, the analyst said. 

Cabot tightened its 2018 guidance range on the basis of higher expected earnings in the reinforcement materials segment. 

"We believe valuation remains attractive following recent share appreciation," Kallo said. 

The Price Action

Cabot shares were up 1.85 percent at $61.01 at the time of publication Wednesday. 

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