Cabot’s 1Q Profit Outlook Tops Estimates On Automotive Recovery

Cabot Corp. reported better-than-expected 4Q earnings and provided an upbeat 1Q earnings outlook. Ahead of the earnings release, shares closed 5.5% higher on Monday.

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The specialty chemicals and performance materials provider’s 4Q EPS of $0.68 per share declined 35.2% year-over-year but surpassed the Street’s estimates of $0.55. However, its revenues of $659 million fell 20.3% and missed the consensus estimates of $675 million.

Meanwhile, Cabot’s (CBT) CEO Sean Keohane said that the company witnessed “strong sequential demand momentum in the fourth quarter largely driven by an improving global economy and steady improvement in the tire and automotive sectors.” He added that the company’s segments, including Reinforcement Materials and Performance Chemicals also saw sequential demand recovery this quarter.

Given the pace of recovery in the automotive and tire markets, Cabot projects 1Q EPS to be in the range of $0.80-$0.90, higher than analysts’ estimates of $0.54. The company said that the 1Q guidance assumes that “the resurgence in COVID-19 infections will not cause a significant disruption to the ongoing business recovery.” Keohane added that “we expect both year-over-year and sequential EBIT improvement as we look ahead to the first quarter of fiscal 2021.” (See CBT stock analysis on TipRanks)

On Nov. 17, Deutsche Bank analyst David Begleiter raised the stock’s price target to $45 (2% upside potential) from $42 but maintained a Hold rating. The analyst told investors in a research note that the company’s “solid” 4Q results is already priced into the stock. The analyst also believes that stock upside will remain limited until Cabot can deliver predictable, consistent and resilient earnings results.

Currently, the Street has a cautiously optimistic outlook on the stock with a Moderate Buy analyst consensus. The average price target stands at $48 and implies upside potential of about 8.8% to current levels. Shares have declined by about 7.2% year-to-date.