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Avient Shares End About 7% Higher on Strong Q3 Outlook; Target Price $33

Vivek Kumar
·3 mins read

Avient Corporation, an international polymer services company, said that markets are recovering from the negative impact of the COVID-19 pandemic and therefore, expects third-quarter sales and adjusted EBITDA to nearly $905 million and $107 million, respectively, sending its shares up about 7%.

The company also stated it expects to generate $80 million of free cash flow during the quarter and is on track to deliver $240 million of free cash flow for the year, which compares to $160 million in 2019.

“Avient expects typical seasonality to still play a role during the fourth quarter, but it is not clear how much the ongoing recovery from COVID could offset this as customers remain cautious about the broader macro,” said Vincent Andrews, equity analyst at Morgan Stanley.

“Of note, savings, particularly T&E, are not expected to reverse in 3Q or 4Q 2020. Longer-term, Avient expects T&E to start picking up in 2021, but thinks it is unlikely that it will ever return to 2019 type spend,” Andrews added.

Avient shares closed 6.89% higher at $26.84 on Friday. However, the stock is still down about 30% so far this year.

Avient stock forecast

Seven analysts forecast the average price in 12 months at $33.00 with a high forecast of $39.00 and a low forecast of $29.00. The average price target represents a 22.95% increase from the last price of $26.84. From those seven equity analysts, four rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $30 with a high of $37 under a bull scenario and $19 under the worst-case scenario. Avient had its price objective lifted by research analysts at Wells Fargo & Company to $35 from $33. The brokerage presently has an “overweight” rating on the stock.

A few other equities research analysts have also recently issued reports on the stock. Jefferies lowered their target price to $28 from $31, while Stifel raised their stock price forecast to $29 from $25 in July.

Analyst views

“A reasonable valuation on 2021 expectations, with several levers to pull to create incremental shareholder value. Like its peers, Polyone faces an uncertain 2020/2021, however, its favourable end market exposure (i.e., limited autos, over-indexed to consumer/packaging/health care) put its likely volume decline on the lower end of the industry spectrum (-15% to -35%),” Morgan Stanley’s Andrews added.

“Polyone fits into our preferred defensive paradigm given its business mix, synergies from the soon to close Clariant acquisition (i.e., self-help), and its just 7.0-times 2021 EBITDA multiple ex-Clariant and 7.4-times 2021 pro-forma for Clariant (note: cons. forecasts a reasonable ~9% EBITDA rebound in 2021.”

Upside and Downside Risks

Upside: Beyond general COVID-related positive macro shocks, greater than expected revenue and cost synergies from the Clariant acquisition as well as the potential for both accretive and mix improving M&A in the companies sub-scale composites business – highlighted by Morgan Stanley.

Downside: Timing risk of large scale Clariant deal close and/or poor integration/increased competitive activity. Elevated leverage level weighs on valuation.

Check out FX Empire’s earnings calendar

This article was originally posted on FX Empire