Chemical and materials maker Cabot Corporation (NYSE: CBT) may offer a buy opportunity the next time shares retreat to a key moving average, such as the 10-day, 21-day or 50-day.
Like smaller rival Orion Engineered Carbons (NYSE: OEC), mid-cap Cabot makes carbon blacks, used to improve the performance of tires and other industrial rubber products.
Also like Orion, Boston-based Cabot operates a business segment focused on performance chemicals, including those used in lithium-ion batteries and many other products.
The stock has gone gangbusters recently, advancing 25.72% so far in 2023, far outpacing the S&P S&P MidCap 400 Index, of which it’s a component. As tracked by the SPDR S&P MIDCAP 400 ETF Trust (NYSEARCA: MDY), that index is up 7.68% in 2023.
Cabot reported fiscal first-quarter results on February 9, with net income coming in at $0.98 a share, on revenue of $965 million. Revenue was essentially flat versus the year-earlier quarter, while earnings were down 3%. Nonetheless, the company beat analysts’ views on both the top and bottom lines, as MarketBeat data show.
Expanding Performance Chemicals Business
While earnings before interest, taxes, depreciation and amortization (EBITDA) for the reinforcement materials was more than double EBITDA for performance chemicals, the company clearly has its eye on expansion in the latter category to meet growing global demand.
In its report, the company said its battery materials business is on track for EBITDA between $45 million and 50 million in fiscal 2023, up from $29 million in fiscal 2022.
In the first quarter, the Battery Materials product line saw year-over-year volume growth of 63%. The company recently announced plans to invest approximately $200 million to expand U.S. manufacturing capacity over the next five years.
As part of that expansion, the company also said plans to add conductive carbon additives (CCA) capacity at its existing facility in Pampa, Texas.
In January, the company elaborated upon those plans. In a statement, CEO Sean Keohane said, “We are at a pivotal moment as the vehicle fleet transitions from internal combustion engines to electric vehicles. CCAs are essential materials to make EV batteries work and expanding battery capacity and building a domestic materials supply chain are critical for the growth of EVs to be realized.”
Accelerating Development In Germany
On March 6, the company announced plans to open a new technology center in Münster, Germany, dedicated to technical collaboration with customers to accelerate development for Cabot’s battery materials product lines in Europe. It’s part of a wider plan to continue delivering materials to customers in Europe, the Middle East and Africa.
The company also has a presence in Asia. In February 2022, it purchased a battery materials plant in China, near another Cabot manufacturing facility.
The company is increasing its presence in an industry poised for growth. Not only are lithium-ion batteries used in EVs, but also in other electronic applications.
Until the most recent quarter, the company’s earnings growth accelerated for three quarters in a row, and revenue had been growing at rates ranging from 19% to 77%.
With a market capitalization of $4.7 billion, Cabot won’t have the same level of analyst coverage that you’d see in a large-cap stock, but data compiled by MarketBeat show Cabot getting a consensus rating of “buy.” The consensus price target is $96.67, representing an upside of 16.48%.
Paying A Dividend
Wall Street is eyeing earnings growth of 3% this year and 7% in 2024. While that’s not the kind of growth level investors might expect from a company entering a fast-paced industry, the company needs some time to build out its capacity to serve customers in the lithium battery market. In addition, investors may have an incentive, as the company does pay a dividend, with a yield of 1.79%.
Cabot broke out of a six-month price consolidation on February 17, clearing a buy point above $78.20 in heavier-than-average trading volume. As you can see on Cabot’s chart, shares are currently trading about 5% above their buy point, meaning it may be wise to wait for a pullback to a moving average before attempting a purchase. A new base could also offer an opportunity.
