Jefferies International has cut its stance for specialty chemicals blue chip Croda International PLC (LON:CRDA) to ‘hold’ from ‘buy’ as it believes the risk/reward for the stock appears relatively balanced.
In a note to clients, the US broker’s analysts pointed out that the recent rally in Croda shares, in their view, more than amply discounts the firm’s improving free cashflow generation in 2018-2019, balance sheet flexibility, visibility on key earnings per share levers - especially product mix, vertical integration and taxes.
READ: Croda International sees an acceleration in sales growth
They noted that Croda shares trade at 23.0 times 2018 EPS estimates, and their increased 12-month price target of 4,700p, up from 4,500p previously also values Croda at 23.0 times based on 2019 estimates.
The analyst said that risks for the group are slower end-market demand, triggering cuts to R&D cycles and hiccups in Croda’s innovation engine, plus overly aggressive M&A, or competitors with lower return hurdles becoming more aggressive.
READ: Croda reports first half profit growth, boosted by sales in core businesses
They noted that the recent rally is consistent with Croda's tendency to outperform when oil prices and consumer confidence are both improving.
In late morning trading today, Croda shares were 0.9% lower at 4,423p.