Investing.com -- Umicore (EBR:UMI) shares surged over 12% on Tuesday after analysts at Goldman Sachs (NYSE:GS) upgraded the company’s stock to a "buy" rating and issued a doubled 12-month price target.
The new target of €16, up from €8.40, implies a potential upside of approximately 56.3% from the stock’s €10.24 price.
Goldman Sachs analysts indicated an increasingly positive outlook on Umicore’s risk-reward profile, asserting that the company’s value is "no longer trapped."
The upgrade is predicated on several key factors, including management’s refined understanding of the competitive landscape in battery materials and a pivot towards value recovery within that segment.
Analysts also cited heightened confidence in Umicore’s "take-or-pay" contracts, improving earnings momentum driven by higher metal prices, and increased balance sheet confidence extending into 2026.
As a direct result of these factors, Goldman Sachs has significantly revised its adjusted EBITDA estimates for Umicore.
Projections for fiscal years 2025, 2026, and 2027 have been raised by 21%, 17%, and 15% respectively.
These updated forecasts position Goldman Sachs’ figures 5%, 9%, and 11% ahead of current consensus estimates.
The analysts applied the "Rule of Three" framework, a proprietary tool used by Goldman Sachs Chemicals for assessing cyclical stocks post-downturn.
This framework suggested Umicore presents a compelling investment case due to anticipated trough margins in the second half of 2024 and first half of 2025, management concessions such as dividend rebasing and scaled-back capital expenditures, and initial signs of an upturn in areas like metal prices and catalysis.
A broader shift in the European battery materials industry’s narrative also played a role. Umicore’s chief executive and Eramet (EPA:ERMT)’s chair recently highlighted Europe’s lag in battery materials technology, advocating for partnerships with Asian groups.
This recognition follows a challenging period for the industry, marked by decelerating electric vehicle growth and regulatory shifts. In 2024, China and South Korea accounted for nearly 95% of global cathode capacity, compared to Europe’s 3%.
Goldman Sachs analysts believe a sale or joint venture for Umicore’s battery materials division is increasingly credible, particularly as the company forecasts returns in this segment to remain below its cost of capital through 2028.
Umicore’s decision to reduce capital expenditure commitments and pursue partnerships is seen as supportive of further de-risking its battery materials investments.
This is expected to facilitate deleveraging, with net debt to EBITDA projected to peak at 2.6x in 2025 before declining to 2.5x in 2026 and 2.2x in 2027.
Free cash flow is anticipated to turn positive in 2026, bolstered by strength in catalysis and a growing contribution from the battery materials "take-or-pay" contracts, alongside a substantial reduction in group capital expenditure.
Additionally, improved metal pricing, including a 28% year-to-date increase in platinum prices, is expected to provide a near-term boost to earnings.
This trend is partly attributed to a slower-than-expected adoption of electric vehicles and continued use of internal combustion engine vehicles, which rely on platinum group metals for catalytic converters.
Goldman Sachs anticipates this will positively impact Umicore’s Recycling and Catalysis adjusted EBITDA.