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Investing.com -- Analysts at J.P. Morgan upgraded Ashland Inc (NYSE:ASH). to "overweight" from "neutral," citing an attractive entry point for investors amid stabilizing business conditions, in a note dated Wednesday.
The brokerage also raised its price target for the specialty chemicals company to $71 per share from $68, reflecting a potential upside of 25% from its current trading levels.
“We lifted our investment rating on Ashland from Neutral to Overweight,” J.P. Morgan analysts wrote.
“Ashland is a mostly non-cyclical specialty company that has sharply fallen in value because of negative earnings momentum following a period of customer de-stocking in the aftermath of the post-COVID product scarcity period,” the analysts added.
Ashland, which specializes in additives for pharmaceuticals, personal care products, and industrial applications, has struggled over the past year due to demand headwinds, particularly from customer destocking.
The company’s stock has fallen 40% over the past 12 months and remains down 20% year-to-date, significantly underperforming the broader market. However, J.P. Morgan analysts believe these pressures are temporary rather than structural.
“We view the weakness in Ashland’s businesses as more transient rather than structural,” they noted.
The upgrade is driven by Ashland’s improving fundamentals, particularly in its Personal Care and Specialty Additives businesses.
The Personal Care segment has seen a steady 4% volume growth, while pricing remains stable. Specialty Additives, which had been under pressure, is now experiencing a flattening in prices and a modest recovery in volumes, particularly in non-coatings applications in the U.S.
Meanwhile, the Life Sciences division, which includes pharmaceutical excipients, appears to have found a floor after a challenging 2024, with both volume and pricing trends improving.
Despite ongoing challenges in the domestic construction market and continued weakness in China’s housing sector, J.P. Morgan analysts argue that Ashland’s balance sheet remains solid, with a net debt-to-EBITDA ratio of approximately 2.5x.
“We expect the company to throw off between 7% and 8% of its share price in free cash flow for F2025 and F2026,” the analysts said.
Additionally, Ashland’s planned tax payment of around $100 million in fiscal 2025, stemming from losses on a prior business sale, is expected to provide further financial flexibility.
J.P. Morgan’s valuation for Ashland is based on a sum-of-the-parts approach, applying an 11x multiple to its core specialty operations and a 6.5x multiple to its intermediates business.
“Our December 2025 price target for Ashland is $71, which represents a 10.8x multiple of EV/EBITDA, which is consistent with Ashland’s five-year average EBITDA multiple,” the analysts said.
They also noted that if Ashland continues on its current recovery trajectory, a similar multiple based on 2026 estimates would suggest a valuation closer to $80 per share, implying a 40% upside.
The note flagged that while Ashland faced a steep 15% volume decline in fiscal 2023 and further pricing pressures in early 2024, recent data indicates a turning point.
The company’s first-quarter 2025 results showed a smaller-than-expected contraction in volumes, and the outlook for the second quarter suggests stabilization.
“Our adjusted EBITDA estimate for F2025 is $410m versus the Street Consensus of $436m, and the company’s guidance range of $430m to $470m,” J.P. Morgan analysts pointed out.
While risks remain—particularly a slower-than-expected rebound in China and continued softness in industrial end-markets—J.P. Morgan sees Ashland’s current valuation as compelling.
Given the anticipated earnings recovery, the analysts added the stock to their "Analyst Focus List" as a value opportunity, underscoring their confidence in the company’s longer-term prospects.