CaesarStone Initiated With Buy Rating, $44 Price Target At Chardan

Shares of Caesarstone Sdot-Yam Ltd CSTE have been under pressure on concerns over a slowdown in US revenue growth. Chardan Capital Markets’ Lena Rogovin initiated coverage of the company with a Buy rating and a price target of $44.

The US represents CaesarStone’s largest market, accounting for 45 percent of the company’s sales. CaesarStone’s shares have plunged 44 percent in the past 12 months, mainly on concerns surrounding a deceleration in US revenue growth. Analyst Lena Rogovin wrote, however, that there is significant upside to the company’s shares, even with a reduced sales guidance.

US Market

Quartz penetration in the US is merely 8 percent, and is growing, Rogovin pointed out. Every 1 percent increase in penetration adds $350mn per annum to the company’s US target market. “As the number 2 player in a global quartz surfaces market, CSTE is well positioned to grow from increasing quartz usage for kitchen countertops, especially in the US and Canada,” the analyst mentioned.

Competition

Although competition is increasing, it is mainly from lower end manufacturers, while CaesarStone offers a premium high quality differentiated product, and the company does not have plans of expanding into the lower-end segment.

Growth Estimates

Rogovin estimates the company’s organic revenue CAGR at 10 percent and EBITDA CAGR at 13 percent for 2016-2018. More than 60 percent of incremental growth is expected to come from the US market.