Ingevity In For A Bumpy Ride In The CTO Market, Analyst Downgrades Rating

BMO Capital Market analyst John P. McNulty downgraded Ingevity Corp NGVT to Market Perform from Outperform at a lowered price target of $60 from $71.

McNulty believes the headwinds related to the CTO market will worsen in the next 12-18 months.

In particular, the higher demand from the European biofuels market and supply constraints have significantly pushed the pricing, which is expected to pose incremental cost headwinds of around $200 million in NGVT's Performance Chemicals (PC) segment in 2023 (with pressures worsening in H2 vs. H1 2023). 

Apart from this, the analyst notes that weak demand for rosin in Asia/Europe has decreased NGVT's ability to push prices and produce TOFA/derivative products.

McNulty projects a high impact of these headwinds in H2 2023, with H2 PC segment EBITDA expected in the $0 million-10 million range (vs. $65 million in H1 2023).

Consequently, the analyst lowered 2024 PC EBITDA to roughly $54 million (vs. street view of $120 million-160 million).

McNulty reduced the estimate for revenue and EPS to $1.768 billion (from $1.788 billion) and $3.93 (from $5.48) for 2023, and $1.856 billion (from $1.864 billion) and $4.26 (from $6.74), respectively, for 2024. 

Nevertheless, the analyst sees strong long-term opportunities for the company.

Last week, Ingevity reported Q2 sales of $481.8 million, missing the consensus of $486.4 million, while adjusted EPS of $1.41, beating the consensus of $1.37.

Price Action: NGVT shares are down by 6.67% at $54.28 on the last check Monday.