On Tuesday, Deutsche Bank (ETR:DBKGn) adjusted its price target for Quaker Chemical Corporation (NYSE:KWR), reducing it to $190 from the previous $225. Despite the change, the firm maintained its Buy rating on the stock. The adjustment follows Quaker Chemical's second-quarter earnings release, which revealed a 2% EBITDA miss and third-quarter EBITDA guidance approximately 5% below the consensus.
The company's quarter was characterized by a continued expansion of gross margins, which grew 200 basis points year-over-year to 37.9%, attributed to lower raw material costs and enhanced commercial and operational execution. This marks the eighth consecutive quarter of year-over-year gross margin growth for Quaker. However, the margins fell slightly short of the "similar to Q1" guidance of 38.7%, mainly due to weaker industrial production in the Americas and EMEA regions.
Despite these challenges, the company's second-quarter gross margins remained within its long-term target range of 37-38%. Quaker anticipates third-quarter EBITDA to be on par with the second quarter, driven by a modest sequential volume increase in the Americas—owing to the lack of customer outages—and in the Asia Pacific region, along with ongoing new business gains. These factors are expected to counterbalance the softness in end market conditions.
Quaker Chemical has not issued full-year guidance, which is consistent with its usual practice. Still, with signs of improvement in China, India, and other parts of Asia—largely due to new business acquisitions—and positive trends in aerospace, transportation OEM, and primary metals sectors, Deutsche Bank forecasts only a 4% quarter-over-quarter decrease in fourth-quarter EBITDA. This is an improvement compared to the 9% decline in the same period of the previous year.
The analyst underscored Quaker's unique business model, which is designed to achieve above-market sales growth and gross margin expansion. Highlighting the company's resilience to economic downturns due to its service-intensive, customer-focused, and asset-light approach, and with raw materials accounting for 85% of COGS and SGA being 75% variable, the valuation is deemed attractive at 10.5 times estimated 2024 EBITDA. This is notably lower than the 21.6 times EBITDA for its peer Ecolab (NYSE:ECL), which holds a Hold rating.
In other recent news, Quaker Chemical Corporation has been in the spotlight following Deutsche Bank's decision to adjust its price target for the company's stock. The financial institution reduced its price target from $225 to $190, though it maintained a Buy rating for the company's shares.
This revision was made in response to Quaker Chemical's second-quarter earnings release, which revealed that the company's EBITDA fell short of expectations by 2% and its third-quarter EBITDA guidance was approximately 5% below consensus.
Moreover, Quaker Chemical reported a successful second quarter with a notable expansion in margins and an increase in earnings, despite a decline in net sales. The company's gross margins increased by 200 basis points year-over-year to 37.9% thanks to lower raw material costs and improved commercial and operational execution. However, the margins did not meet the anticipated figure of 38.7% due to a continued softness in industrial production, particularly in the Americas and EMEA regions.
Quaker Chemical's second-quarter gross margins remained at the higher end of its long-term target range of 37-38%. The company anticipates its third-quarter EBITDA to mirror the second quarter's, driven by modest sequential volume improvements in the Americas, absence of customer outages, and growth in the Asia Pacific region.
The company also expects new business wins to help counteract soft market conditions. These are recent developments that investors should keep an eye on.
InvestingPro Insights
Amidst the adjustments in Quaker Chemical Corporation's (NYSE:KWR) financial outlook by Deutsche Bank, key metrics and InvestingPro Tips provide a deeper understanding of the company's current standing and future prospects. With a market capitalization of $3.03 billion and a P/E ratio of 24.3, Quaker Chemical shows signs of stability. An important highlight is the company's consistent dividend payments, having raised its dividend for 17 consecutive years and maintained payments for 52 years, which is a testament to its financial discipline and commitment to shareholders.
InvestingPro Tips indicate that Quaker Chemical's stock trades with low price volatility, suggesting a stable investment for those concerned with market fluctuations. Moreover, the company's liquid assets exceed short-term obligations, providing a buffer in uncertain economic times. Analysts remain optimistic about Quaker Chemical's profitability, predicting the company will be profitable this year and noting its profitability over the last twelve months.
While revenue has seen a slight downturn in the last twelve months, with a decrease of 4.14%, the company's gross profit margin stands strong at 37.64%, aligning with the margin expansion noted in the article. The dividend yield currently stands at 1.15%, and with a recent dividend growth of 11.49%, Quaker Chemical continues to reward its investors. For those looking for further insights, InvestingPro offers additional tips on Quaker Chemical at https://www.investing.com/pro/KWR.
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