Croda International PLC's (LSE:CRDA) shares slumped 10% after its latest results, but Morgan Stanley has just upgraded the stock to “overweight,” signalling a sharp change in sentiment.
The chemicals group posted half-year figures that matched expectations and stuck to its full-year guidance, a rare steady hand in a volatile sector.
The share drop came after Croda flagged ongoing price pressures and some regulatory uncertainty in its US pharma division, leaving investors nervous.
But Morgan Stanley thinks the market is being too pessimistic.
Most price cuts are simply passing on lower raw material costs, not a sign of desperation, and Croda’s profit margins are still robust, at 45%, they remain some of the best in the industry.
The American bank also points out that Croda’s earnings forecasts for the next few years look achievable, with potential for upgrades as investments in growth and efficiency bear fruit.
With the shares, which were flat at 2,610p on Wednesday, now trading below their long-term average valuation, the bank says Croda could be an opportunity for patient investors willing to look past the near-term noise.