On Thursday, Goldman Sachs (NYSE:GS) adjusted its stance on Umicore SA (UMI:BB) (OTC: OTC:UMICY) shares, a global materials technology and recycling group, by reducing the company's price target to €14.40 from €19.00, while maintaining a Sell rating on the stock.
The revision follows Umicore's recent performance, which has seen the company's shares underperform the SX4P – the STOXX Europe 600 Chemicals index – by approximately 30% over the last month and around 40% year to date.
Goldman Sachs cited ongoing concerns about the increasing presence of LFP (lithium iron phosphate) batteries in the market and the uncertain ramp-up of Umicore's European customers as reasons for the downgrade.
Despite expectations that lower electric vehicle (EV) penetration could benefit Umicore's Catalysis business – a segment known for generating cash and being accretive to returns – the firm anticipates that investors might discount these cash flows more heavily, considering the market is no longer growing.
Goldman Sachs also highlighted valuation concerns, noting that Umicore appears expensive when trading at 6.4 times its estimated 2025 EBITDA, with a free cash flow yield of -8%.
This is in contrast to EU diversified peers trading at 6.0 times EBITDA for a 7.5% yield and close competitor Johnson Matthey (LON:JMAT) at 6.0 times EBITDA for a 2.7% yield. The analysis indicates a cautious outlook for Umicore's financial performance relative to its industry counterparts.
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