Seaport Global Securities Upgrades W.R. Grace & Co. (GRA) to Buy
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Seaport Global Securities upgraded W.R. Grace & Co. (NYSE: GRA) from Neutral to Buy with a price target of $79.00.
Analyst Michael Harrison commented, "We tweaked our forward EPS estimates modestly lower, reflecting some concerns on the macro growth environment as well as some headwinds related to slower Specialty Catalysts earnings in China. GRA posted solid Q3 results on improving gross margin, acquisition contribution, and better ART earnings. We believe GRA has multiple levers to continue driving margin expansion, including better FCC utilization, acquisition synergies, better pricing and reformulation benefits, and improving Materials mix. We think it's particularly important to note refinery customers are increasingly responding to the value proposition and technology within the Catalysts business, which shifts the discussion away from pricing and should be a long-term positive. GRA is seeing some headwinds related to chemical catalysts and polypropylene licensing, specific to some cyclical weakness in China, that is expected to be a $10MM-$12MM EBIT headwind YoY in 2017. We still believe GRA has the pieces in place to drive solid EPS growth in almost any macro environment given the self-help opportunities in place. Coupled with the puzzling weakness following the Q3 print, we believe this warrants an upgrade from Neutral to Buy. We maintain our $79 price target, which represents 11.8x our FTM EBITDA estimate (starting Q4:17). GRA had until recently been trading at more than 12x EBITDA, but has come down to 11.4x EBITDA currently. We note a low cash tax rate contributes to strong free cash flow, much of which will be returned to shareholders through repurchases."
Shares of W.R. Grace & Co. closed at $66.96 yesterday.
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