KeyBanc Downgrades Lubrizol To Hold

In a report published by KeyBanc, Lubrizol LZ maintains a solid track record of earnings growth, strong free cash flow generation and top tier specialty chemical operating margins.

KeyBanc said that it is downgrading its rating on LZ from BUY to HOLD given the recent offer by Berkshire Hathaway (BRK.A, BRK.B–NYSE) to acquire 100% of LZ's outstanding shares for $135.00 per share. “While the current offer price would suggest upside to our previous $148.00 price target, we believe the risk/reward profile at current levels warrants our HOLD rating at this time, in which the Berkshire bid represents an estimated FY11E EV/EBITDA multiple of 6.6x and a FY11E P/E multiple of roughly 12.0x. While top-tier profitability levels could warrant a higher multiple from the buyout level, in our opinion, the deal represents an immediate positive return to shareholders in an environment in which headwinds persist on the raw materials front, some concern exists on the strength of recovery and given our specialty chemical coverage universe is up 0.6% year-to-date vs. the SPX up 3.6%.”

Lubrizol closed yesterday at $134.68.