Tuesday, Jefferies has increased the price target for Orion Engineered Carbons S.A. (NYSE: NYSE:OEC) to $32.00 from the previous $30.00, while keeping a Buy rating on the stock.
The firm believes that the current investment environment in carbon black is being affected by concerns about an influx of methane pyrolysis projects and rising regulatory costs in the European Union. This apprehension is expected to slow down investments, which could lead to an extended pricing cycle beyond initial projections.
The analyst from Jefferies anticipates that Orion Engineered Carbons will benefit from favorable price settlements for rubber black and a global restock cycle in specialty carbons expected in the years 2025 to 2026. These factors are projected to enable the company to achieve its $500 million mid-cycle EBITDA target.
Additionally, the firm suggests that the long-term prospects of the company are bolstered by the ongoing transition to electric vehicles (EVs) and initiatives aimed at tire circularity. These elements are believed to be currently undervalued in the market's assessment of Orion Engineered Carbons' potential.
Orion Engineered Carbons, which specializes in the production of carbon black, a form of carbon used to enhance the properties of materials in various applications such as tires and coatings, is seen to be well-positioned to capitalize on these market dynamics.
The price target adjustment reflects a positive outlook on the company's ability to navigate an evolving industry landscape, with expectations of strong financial performance in the forthcoming years.
In other recent news, Orion S.A., a global chemical specialty leader, has partnered with French recycling company, Alpha Carbone, to boost sustainable carbon black production. The strategic collaboration includes a long-term supply agreement, positioning Orion as the exclusive customer for Alpha Carbone's tire pyrolysis oil. This initiative aligns with Orion's sustainability commitment and is expected to commence operations in late 2025.
On the financial front, Orion S.A. has reported a 19% increase in specialty volume year-over-year and a rise in gross profit per ton to $659 for the first quarter of 2024. Despite mixed market conditions, the company anticipates continued growth and a record EBITDA for the year. Orion's sustainability efforts have earned it a platinum EcoVadis rating, reflecting its commitment to environmental stewardship.
The company also plans to open a new plant in Texas, although significant financial contribution from this facility may not materialize until well into 2026. Orion's CEO, Corning (NYSE:GLW) Painter, has indicated that the company remains committed to its guidance range for adjusted EBITDA and adjusted diluted EPS. These recent developments indicate Orion's strategic growth and commitment to sustainability, as well as its resilience in navigating a mixed market environment.
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