Cabot Raises Guidance After Strong Quarter
Shares of Cabot Corporation (NYSE: CBT) are moving higher after reporting a very strong quarter. The company is perfectly positioned as a specialty chemical maker servicing virtually all industries and seeing systemwide demand. Demand is so strong, in fact, the company raised its guidance for the year and we think the new guidance could be cautious. There are glimmers of easing within the supply chain and that can mean only one thing, better availability of products and input materials and a surge in economic activity and business for Cabot Corporation.
The institutional activity over the past year suggests the institutions see something similar in their outlook for this company. While buying and selling have been active on both sides of the equation the net of activity over the past 12 months is $0.162 billion in favor of the bulls. This amounts to roughly 5.15% of the market cap with shares trading near $55 bringing the total institutional ownership up to nearly 90%. It should be noted, institutional activity was heaviest in the first half of 2021 and has slacked off in the time since. The takeaway is that institutional activity resulted in a trading range with what appears to be very strong support at the lower end of the range.
Cabot Corporation Blow Past Consensus
Cabot Corporation had a very strong quarter in which it outperformed at all levels. The company reports strong demand in key markets as well as throughout the system and we these trends holding up or strengthening in 2022. The company reported $968 million in net revenue for a gain of 29.8% over last year. The revenue strength was supported by pricing increases in all regions that do not appear to have impacted demand. Batteries we called out specifically by the company for its 58% increase in revenue and their plans to expand operations. The revenue beat the consensus estimate by 1120 basis points as well.
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Moving down, pricing increases were successfully negotiated for multiple end-markets resulting in a better than expected margin at the gross and operating levels. The company reported a net loss, however, on a GAAP basis but this is due to the divestiture of a business and has no impact on operations or income. On an adjusted basis, the $1.29 beat the consensus by $0.19 and is up $0.11 from last year and there is still more good news to come. As far as guidance goes, the company is guiding EPS in a range of $5.50 to $5.90 for the year compared to the $5.39 consensus and we think the company will guide higher again later in the fiscal year.
High-Yield Cabot Corporation Is A Deep Value Too
Cabot Corporation is not only a high-yielding stock with a distribution worth 2.7% of share prices but the stock trades at a deep value while coming with a positive outlook for growth and dividend increases. The stock trades at only 10X its earnings guidance at the low end of the range compared to a more robust 21X for the average S&P 500 company and they only yield about 1.1% The payout is safe too, the payout ratio is only 27% of earnings with only one red flag. Cash flow is tight but expected to improve over the course of the year as CAPEX declines.
The Technical Outlook: Cabot Corporation Moves Up From Support
Shares of Cabot Corporation put a bottom in over the course of last year, aided by institutional support, and have since confirmed reversal. This reversal is within a wide and long-term trading range whose top is near $65 or 18% above the recent price action. There is a chance for resistance at the $60 level to cap gains but, with the outlook for earnings improving, we will not be surprised to see price action move cleanly above it.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Cabot (CBT) | $108.67 | +1.4% | 1.58% | 16.12 | Hold | $105.00 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
