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What Makes Cabot (CBT) a Solid Investment Option Right Now

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Cabot Corporation’s (CBT - Free Report) stock looks promising at the moment. The company’s shares are up around 10% over the past six months. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.

Let’s take a look into the factors that make this specialty chemicals and performance materials company an intriguing choice for investors right now.

What Makes CBT an Attractive Pick?

Solid Rank & VGM Score

Cabot has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities for investors.

Estimates Northbound

Earnings estimate revisions have the greatest impact on stock prices. Over the past month, the Zacks Consensus Estimate for Cabot for the current fiscal year has increased around 21.9%. The consensus estimate for the next fiscal has also been revised 15% upward over the same time frame.

Healthy Growth Prospects

The Zacks Consensus Estimate for earnings for the current fiscal for Cabot is currently pegged at $3.29, reflecting an expected year-over-year growth of 58.2%. Moreover, earnings are expected to register a 14.4% growth in the next fiscal year.

Superior Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Cabot is 11.7%, above the industry’s level of 9%.

Attractive Valuation

Valuation looks attractive as Cabot’s shares are currently trading at a level that is lower than the industry average, suggesting that the stock still has upside potential.

Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value chemical stocks, Cabot is currently trading at trailing 12-month EV/EBITDA multiple of 6.58, cheaper compared with the industry average of 9.66.

Strong Q4 and Upbeat Outlook

Cabot’s adjusted earnings per share of 68 cents for the fourth quarter of fiscal 2020 trounced the Zacks Consensus Estimate of 58 cents. Net sales of $659 million also beat the Zacks Consensus Estimate of $655.6 million. The company saw a rebound in volumes in its Reinforcement Materials segment on a sequential comparison basis in the quarter.

Cabot said that it is encouraged by the pace of recovery in automotive and tire markets as it enters fiscal 2021. The company expects earnings before interest and tax (EBIT) to improve both sequential and year-over-year basis in the first quarter of fiscal 2021.

The company envisions its Reinforcement Materials unit to benefit from improved margins, especially in Asia. It also expects the Performance Chemicals segment to gain in both volumes and product mix from a strengthening automotive market.

Cabot should gain from a recovery in demand from its automotive and tire customers from the pandemic-led slowdown. Moreover, improved pricing in its fumed metal oxides business is expected to support margins in the fiscal first quarter.

The company should also benefit from the acquisition of Shenzhen Sanshun Nano New Materials. The acquisition significantly bolsters the market position and formulation capabilities of Cabot in the high-growth batteries market, especially in China. The buyout is also expected to create opportunities to expand Cabot’s position in the rapidly growing energy storage market.

 

Cabot Corporation Price and Consensus

 

Cabot Corporation Price and Consensus

Cabot Corporation price-consensus-chart | Cabot Corporation Quote

 

Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include BHP Group (BHP - Free Report) , Silvercorp Metals Inc. (SVM - Free Report) and Pretium Resources Inc. (PVG - Free Report) .

BHP Group has a projected earnings growth rate of 31.3% for the current fiscal year. The company’s shares have gained around 8% in a year. It currently sports a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Silvercorp has an expected earnings growth rate of 40% for the current fiscal. The company’s shares have gained around 18% in the past year. It currently carries a Zacks Rank #2.

Pretium Resources has an expected earnings growth rate of 25.5% for the current year. The company’s shares have gained around 10% in the past year. It currently carries a Zacks Rank #2.

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