Cabot Corporation’s CBT fully-owned subsidiary, Cabot China Limited, inked a deal to acquire Shenzhen Sanshun Nano New Materials (“SUSN”) for roughly $115 million in enterprise value, including liabilities and contingent payments. The transaction is slated to close in the second quarter of fiscal 2020.
The acquisition significantly bolsters the market position and formulation capabilities of Cabot in the high-growth batteries market, especially in China. Notably, with the acquisition, the company is expected to be the only supplier of carbon additives, with commercially proven carbon black, carbon nanotube, carbon nanostructure and dispersion capabilities.
Per Cabot, the acquisition provides its energy material business with a new technology platform as well as aids it in its strategy to expand in the formulations space. The buyout is also expected to create opportunities to expand its position in the rapidly growing energy storage market. Further, the acquisition will likely enable the company to deliver innovative solutions that facilitate better battery performance at an optimized price to performance ratio.
Notably, the buyout presents Cabot with a unique opportunity to create world-class formulated solutions and provides customers with an even broader product range to meet their needs.
The integration of Cabot’s portfolio of energy materials and SUSN is expected to create a business with sales of $50 million. Revenues are projected to grow 20-25% over the next five years from sustained growth in electric vehicles and other lithium-ion battery storage applications, making this a significant part of Cabot’s specialty chemicals portfolio.
Shares of the company have gained 2.8% in the past year against the industry’s 22.3% decline.
Cabot expects adjusted EPS of $3.60-$4.10 for fiscal 2020.
The company anticipates challenges in first-quarter fiscal 2020 as customers actively manage year-end inventory levels. Gains from the new fumed silica plant in China and Reinforcement Materials' customer agreements are likely to drive Cabot’s performance in fiscal 2020. Due to the International Marine Organization’s (IMO) new regulation, which is affecting the Reinforcement Materials and Performance Chemicals units, the company will continue to witness fluctuations in feedstock costs.
Cabot expects the Purification Solutions segment to witness year-over-year growth on continued benefits from its transformation plan.
Cabot Corporation Price and Consensus
Zacks Rank & Stocks to Consider
Cabot currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the basic materials space are Daqo New Energy Corp. DQ, Pan American Silver Corp. PAAS and Sibanye Gold Limited .
Daqo New Energy has projected earnings growth rate of 294.7% for 2020. The company’s shares have rallied 106.7% in a year. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pan American Silver has an estimated earnings growth rate of 38.1% for 2020. It currently flaunts a Zacks Rank #1. The company’s shares have gained 53.1% in a year.
Sibanye Gold has a projected earnings growth rate of 587.5% for 2020 and a Zacks Rank #2 (Buy) at present. The company’s shares have soared 242.9% in a year.
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