UBS initiates coverage on Solstice Advanced Materials stock with Buy rating

Investing.com - UBS initiated coverage on Solstice Advanced Materials Inc. (NASDAQ:SOLS) with a Buy rating and a price target of $62.00 on Monday. The stock is currently trading at $45.07, representing potential upside of nearly 38% to UBS’s target.

The investment bank views Solstice as a unique collection of businesses, with over 60% of its portfolio exposed to secular or regulatory-driven growth in refrigerants, electronics, and nuclear fuel. The company’s strong financial health is supported by its solid balance sheet, with InvestingPro data showing Solstice holds more cash than debt.

UBS expects Solstice to deliver approximately 7% EBITDA compound annual growth rate over the next three years, even without a market recovery, potentially driving a 10-12% longer-term adjusted EPS compound annual growth rate. The company’s current EBITDA stands at $1.02 billion for the last twelve months, with analysts forecasting EPS of $2.72 for fiscal year 2025.

The firm acknowledges that near-term trading could be choppy as the shareholder base transitions, but believes Solstice’s valuation will expand as the company meets or exceeds initial expectations of approximately $1.0 billion in 2026 EBITDA. Investors should note that Solstice is trading near its 52-week low of $44.05, with the stock down 6.88% over the past six months.

Solstice is currently trading at approximately 8.5 times EBITDA, similar to diversified peers, but UBS suggests higher margins, returns, and more stable growth should support a valuation closer to 10.5 times EBITDA. According to InvestingPro, the company’s current EV/EBITDA ratio is 6.54, with a gross profit margin of 35.17% and strong cash flows that sufficiently cover interest payments. The company is set to report earnings in just 3 days, which could be a catalyst for the stock.

In other recent news, Solstice Advanced Materials Inc. has made headlines with its upcoming inclusion in the S&P 500 index. This move follows the planned spinoff from Honeywell International, which is set to complete on October 30. Honeywell will retain its positions in both the S&P 500 and S&P 100, even after the spinoff. Additionally, Mizuho has initiated coverage on Solstice Advanced Materials with a Neutral rating and a price target of $54.00, indicating a potential 10% upside. The firm highlighted Solstice as a leading producer in the fluorochemicals sector, specifically in refrigerants, with low leverage and no significant liabilities related to PFAS. These developments mark significant milestones for Solstice Advanced Materials, drawing attention from investors and analysts alike.

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