Friday, Credit Suisse upgraded Cytec Industries Inc. (CYT) shares to Outperform from Neutral and increased its price target to $46 from $40. The brokerage raised its 2010 EPS estimate to $2.38 from $2.03.
Analyst McNulty said that CYT's stock was too cheap and he would look to get more constructive on the stock only after management showed traction in turning around the resin coatings business that traction was very clear in the extremely strong third quarter earnings.
The analyst noted that CYT reported third quarter EPS of $0.57 vs. the street at $0.34. The strength of the beat came from a dramatic turnaround in the Resin Coatings, or RC, segment and better numbers in Building Block Chems that more than offset greater than expected weakness in the Engineered Materials, or EM, segment.
Given the significant turn in the resin business tied to improving volumes as well as plant closures and restructuring, the analyst is adjusting his fourth quarter EPS to $0.38 and raising 2010 from his street-high of $2.03, to $2.38 and believes the consensus, at $0.30 and $1.75, needs to come up a lot.
Additionally, there may be solid upside to the analyst estimates as he has conservatively modeled fiscal 2010 RC margins lower than the third quarter of 2009 level on concerns that some was restocking related.
The analyst believes CYT has turned the corner in the three-year battle to restructure the RC business. Given the size of the RC business, 43% of sales, further earnings growth tied to modest volume improvement and solid operating leverage should help to more than offset the near/intermediate term weakness in the EM segment.
Currently, CYT is up $2.68 or 7.75% and trading at $37.24.
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