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UBS: What The Bears Are Missing By Selling This Home Remodeling Company

September 2, 2015 3:01 pm
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  • Caesarstone Sdot-Yam Ltd (NASDAQ: CSTE) has declined more than 45 percent in the past four weeks, compared with an industry down just 10 percent.
  • UBS’s Susan Maklari said that this selloff is unwarranted and that the current valuation suggests little upside to U.S. growth.
  • Maklari’s $67 price target reflects a potential 76 percent upside to current price – at $38.21.

Caesarstone Sdot-Yam is off by nearly half, while the industry has declined just 10 percent. That move is enough to cause UBS analyst Susan Maklari to reiterate a Buy rating on the stock. Despite her bullish case, Maklari revised her price target lower by $11 to $67, discounting the multiple that the firm had initially placed on the stock.

The Revision

Maklari argued that investors who sold the stock discounted any growth in the United States, saying that it was a “scenario we believe is unrealistic.”

Maklari pointed out that the company had a 19 percent market share in the United States in 2014, which was up 3 percent from 2012. She said the growth should continue as the “unique product offerings” allowed the firm to “distinguish itself and gain momentum.”

Related Link: BuildZoom Chief Economist Sheds Light On Remodeling Data

Additional Catalysts

Further, a new U.S. facility comes this year, which should help the company break into new home construction, as opposed to sticking with a traditional repair and remodel market.

In total, the bears are missing three main factors, according to the note:

  • 1) underestimating the rate of growth in the United States
  • 2) overestimating increased competition from low-cost producers
  • 3) overestimating the impact of rising quartz prices on margins

Maklari also said that Caesarstone has “ample liquidity” and “robust” free cash flow, allowing it to be “well positioned to pursue expansion in response to improving conditions.”

Before this precipitous decline, Caesarstone had hit a 52-week high of $72.01 in early August. The stock is now down 36 percent on the year.

Image Credit: Public Domain

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