Seaport Global Securities Starts W.R. Grace & Co. (GRA) at Neutral
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Seaport Global Securities initiates coverage on W.R. Grace & Co. (NYSE: GRA) with a Neutral rating and a price target of $81.00.
Analyst Michael Harrison commented, "We are initiating coverage of the global leader in refining and petrochemical catalysts and silica-based functional additives. GRA brings technology and expertise in its core inorganic materials business that provide a competitive advantage in developing value-added solutions. EBITDA margin of ~31% (our 2016 estimate) is toward the high end of our chemicals group coverage, underscoring the quality of the business model and deep moats. We believe the Catalysts and Materials businesses should both be able to grow revenue in the low- to mid-single digits organically, and we see opportunities for consolidation in both segments. GRA recently bolstered its polyolefin catalysts position by purchasing a business from BASF that should be accretive during 2017. Ample free cash flow generation (guidance of $250MM for 2016) should fund further M&A as well as share repurchases, though current balance-sheet leverage of 3.0x is above management's target, suggesting some debt paydown near term. We view GRA as a solid long-term performer, but view the current valuation of 12.5x EBITDA as fairly valuing the opportunities ahead. This suggests a Neutral rating is appropriate. We note, however, that we believe GRA is a potential takeout target following the spin-out of its GCP construction and packaging business, and there has been brisk M&A activity in the chemicals and materials space recently."
Shares of W.R. Grace & Co. closed at $75.44 yesterday.
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