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On Thursday, JPMorgan analysts revised their stance on Orion Engineered Carbons S.A. (NYSE:OEC), downgrading the stock from Overweight to Neutral. Accompanying this change, the price target was also reduced to $12.00, down from the previous target of $18.00. The stock currently trades at $12.23, with a market capitalization of $693 million. According to InvestingPro analysis, the company maintains a GOOD financial health score despite operating with a significant debt burden.
The downgrade comes after an evaluation of the economic landscape and its potential impact on valuation. Despite acknowledging Orion’s reasonable value, trading at a forecasted 5.2x enterprise value to EBITDA multiple for 2025 and 4.6x for 2026, JPMorgan analysts expressed concerns about the risks posed by economic uncertainties. The company’s current debt-to-equity ratio of 2.16 and EBITDA of $287.3 million provide additional context to these valuations. Get deeper insights into OEC’s financial metrics and more exclusive analysis with a InvestingPro subscription.
In November 2024, JPMorgan had upgraded Orion to Overweight with a price target of $21, anticipating an expansion in its EBITDA multiple from 5x to 6x. At that time, Orion was trading at a significant discount compared to its peer, Cabot (NYSE:CBT), with a multiple point discount of 3x-3.5x. However, the current discount to Cabot is now narrowed to 1.3x multiple points for 2025, as Cabot’s valuation has declined sharply.
The reduced likelihood of multiple expansion is a key factor in the recent downgrade, with valuations of carbon black companies now considered to be within a normal range relative to each other. The analysts estimate Orion’s free cash flow yield at approximately 15% for 2026, which is expected due to a predicted decrease in capital expenditures following the completion of an expansion project in battery materials.
Orion’s projected EBITDA multiple of 4.6x for 2026 is contrasted with Cabot’s 6.0x multiple. JPMorgan analysts view this as a reasonable discount of about 1.5x turns, given the companies’ standings in the carbon black market. Carbon black is used as a reinforcement material for tires and in specialty blacks for various applications including coatings, plastics, and flexible materials. While current market conditions present challenges, InvestingPro’s Fair Value analysis suggests OEC may be undervalued at current levels. Subscribers can access the comprehensive Pro Research Report, which is part of the analysis available for over 1,400 US stocks, offering detailed insights into the company’s valuation and growth prospects.
In other recent news, Orion Engineered Carbons S.A. has entered into a long-term supply agreement with Contec S.A. to enhance the production of sustainable carbon black. This collaboration aims to utilize tire pyrolysis oil from recycled tires, supporting the rising demand from major tire and rubber product manufacturers. Orion’s CEO, Corning (NYSE:GLW) Painter, highlighted the company’s commitment to sustainability by noting that Orion is the only company currently producing circular carbon black from 100% tire pyrolysis oil. This initiative aligns with Orion’s strategy to promote the circular economy by converting end-of-life tires into high-quality carbon black. Contec’s CEO, Krzysztof Wróblewski, emphasized the partnership’s significance in advancing the industry’s evolution toward a circular economy. Orion operates 15 plants globally and is known for its innovative sustainable solutions, while Contec is recognized for its Molten® technology in tire recycling. This agreement underscores both companies’ dedication to environmental stewardship and innovation in the specialty chemicals sector.
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