Ashland Inc. (ASH) PT Raised to $114 at Wolfe Research
Wolfe Research analyst Chris Parkinson raised the price target on Ashland Inc. (NYSE: ASH) to $114.00 (from $108.00) while maintaining a Outperform rating.
The analyst comments "As of April 30th, ASH shares +13.3% YTD, outperforming the S&P 500 at +5.6%, XLB (+3.6%) and our Wolfe Ingredients Index (+4.0%) following a better than feared demand outlook for FY'24. On an absolute basis, ASH is trading at 11.6x consensus NTM EBITDA, which is slightly above its 5-year median at 11.1x - which reflects a fairly balanced outlook post PC and SA de-stocking. Over the past 5 years, ASH's forward inter-quartile trading range has been between 9.7x (aligns w/ chemical intermediates) and 11.3x (aligns w/ low end of global ingredients). Given recent volatility in quarterly results, a high degree of skepticism re: portfolio growth, and concerns re: RONA / FCF, it's our sense that valuation will reside close to mid-point of its historical range for the imminent future. However, it's our strong belief that (i.) building optimism for new products, especially in PC, (ii.) steady improvements in RONA (re-purposing assets for new products) / FCF (WC draw-down), and (iii.) ultimately delivering steady (sturdy) quarterly results, will ultimately drive ASH's valuation higher over a multi-year period. During FY24 ASH needs to (i.) move past Personal Care and Specialty Additives inventory de-stocking and (ii.) improve perceptions re: persistent volume under-performance (ASH was outperforming most comps pre- global de-stocking), and (iii.) focus on narrowing its FCF conversion and RONA gaps vs. core Euro personal care ingredient peers in order for the multiple to expand. We appreciate (and respect) the notion that ASH needs to be a “beat n' raise” story as well (i.e. - consistent quarterly execution in SMID cap land), but this relates to expectations, as well as fundamentals. As we're comfortable the worst of personal care de-stocking is now complete (recent commentary from EL and L'Oreal), and that ASH's R&D focus will render better volume results (and consequently improve RONA), we're comfortable with our “grind higher” thesis. Our $114 PT is based on 12.0x FY25 EBITDA of $570mm, discounted back. This is a +/- 10% discount to our Ingredients Index given that ASH needs to further establish credibility on a quarterly basis (execution perceptions vs. peers) and further solidify itself as a “best-in-class” Pharma and Personal Care supplier."