Monday, KeyBanc Capital upgraded Cytec Industries Inc. (CYT) shares to Hold from Underweight. The brokerage lowered its 2009 EPS estimate to $1.25 from $1.35, and its 2010 estimate to $1.75 from $2.00.
Analyst Michael Sison upgraded the stock given Cytec Industries has good earnings potential longer term and should see earnings improvement in 2010 with sharp execution on restructuring efforts. Looking to 2010, the analyst does not see downside as compelling, with the stock trading below historical multiple lows.
Near term though, earnings visibility remains weak and the analyst does not see a good catalyst to drive momentum on the stock. The analyst sees EPS improving to $1.75 in 2010 vs. $1.25 in 2009, with the lion's share of the improvement coming from getting Surface Specialties to breakeven levels from a loss of $40 million in 2009.
The analyst said that CYT should generate near $110 million in annualized cost savings to impact 2010, with the lion's share coming in Surface Specialties. Assuming no further volume declines in 2010 vs. 2009, manufacturing site reductions, workforce shrinkage and productivity efforts, this segment should enter 2010 at breakeven levels at a $1.1 billion sales run rate.
The analyst does expect Engineered Materials to decline again in 2010 given commercial aircraft build rates falling in 2010 vs. 2009 and modest improvement in Performance Specialties. The analyst suspects there will be customer inventory destocking in the commercial aerospace markets given that build rates will be down in 2010E vs. 2009. Demand for Surface Specialties will likely remain weak for the entire year, given exposure to Europe.
Assuming Surface Specialties can get back to 2008 levels of operating income, Engineered Materials sees growth from ongoing delays from widebody aircrafts and cyclical improvement in Performance Specialties, the analyst believes CYT's normalized earnings power is in the $3.00 area.
Currently, CYT is down $0.87 or 4.06% and trading at $20.57.
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