Citi maintains neutral stance on GrafTech, price target remains at $1 From Investing.com

On Monday, Citi reiterated its neutral rating on GrafTech International Ltd. (NYSE:EAF) and maintained its $1.00 price target. This assessment follows news that HEG Limited, an Indian manufacturer of graphite electrodes, increased its stake in GrafTech to 8.3%, according to a recent press release and Schedule 13G filing. Filing a Schedule 13G instead of a Schedule 13D suggests that it is a passive investment.

HEG, a subsidiary of LNJ Bhilwara Group with a market capitalization of about $1 billion – more than double GrafTech’s valuation of $0.5 billion – is listed in India. HEG’s stake increase was mentioned during GrafTech’s recent quarterly earnings call, suggesting it was a passive trading investment.

Despite a recent announcement from Resonac/Showa Denko of a 20% increase in electrode prices effective September 16, 2024 due to previously unsustainable lower prices, Citi’s stance on GrafTech remains unchanged. The analyst noted that market conditions for the electrode industry remain challenging due to weak global steel production.

Additionally, the analyst noted that fiscal stimulus in China could have a positive impact on the industry as Chinese electrode prices historically lead the global market. However, as of this writing, the firm maintains its neutral position on GrafTech’s shares.

In other recent news, GrafTech International is navigating industry headwinds as the company eyes growth opportunities in the electric vehicle (EV) market. The company’s financial performance was impacted by continued pricing pressure and weak demand despite cost reductions. BMO Capital Markets recently issued its rating on GrafTech, lowering its price target on the stock but maintaining a “Market Perform” rating.

The company expects that the combination of pricing pressures, planned higher maintenance and energy costs will likely impact the company’s results in the second half of the year.

GrafTech reported a second-quarter net loss of $15 million and adjusted EBITDA of $14 million. However, the company reported a 6% sequential improvement in sales volume and expected full-year sales volume growth. GrafTech actively manages its production capacity and working capital and focuses on safety, sustainability and initiatives in the EV market.

Despite short-term challenges, GrafTech remains optimistic about long-term growth opportunities in the steel and EV markets. The company has total liquidity of $232 million, which is expected to support it in the near term. These are some of the latest developments for GrafTech International as the company continues to address ongoing market challenges.

Investing Pro Insights

Current data from InvestingPro provides additional insights into GrafTech International Ltd.’s financial situation and market performance. (NYSE:EAF). The company’s market cap is $475.76 million, which is consistent with Citi’s valuation estimate.

InvestingPro Tips highlights that GrafTech operates with a significant debt load and may struggle to make interest payments, which could explain Citi’s cautious neutral stance. This financial burden is also reflected in the negative gross margin of -2.28% and the operating profit margin of -13.44% in the last twelve months through the second quarter of 2024.

Despite these challenges, GrafTech has shown remarkable short-term price performance. The stock returned 138.2% in the last 30 days and 57.28% in the last three months. This recent rally could be related to the increased holding of HEG Limited as mentioned in the article.

However, it is important to note that analysts are expecting a decline in sales for the current last year, with twelve-month sales growth coming in at -34.91%. This is consistent with the difficult market situation in the electrode industry due to weak global steel production mentioned in the article.

For investors seeking a more comprehensive analysis, InvestingPro offers 15 tips for GrafTech International Ltd. that provide additional understanding of the company’s financial health and market position.

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