On Monday, Citi reaffirmed its Neutral rating on GrafTech International Ltd. (NYSE:EAF), with a consistent price target of $1.00. The reiteration follows news that HEG Limited, an Indian graphite electrode manufacturer, has increased its ownership in GrafTech to 8.3%, as per a recent press release and a Schedule 13G filing. The investment is considered passive, as indicated by the filing of a Schedule 13G rather than a Schedule 13D.
HEG, which is a subsidiary of the LNJ Bhilwara Group and has a market capitalization of approximately $1 billion, surpassing GrafTech's valuation of $0.5 billion, is publicly traded in India. The increased stake by HEG was mentioned during GrafTech's last earnings call, where it was implied that the stake was a passive trading investment.
Despite a recent announcement by Resonac/Showa Denko of a 20% price increase in electrode prices on September 16, 2024, due to previously unsustainable low prices, Citi's stance on GrafTech remains unchanged. The analyst pointed out that the market conditions for the electrode industry continue to be challenging, largely due to the weak global steel production.
Furthermore, the analyst noted that any fiscal stimulus in China could have a positive effect on the industry, considering that Chinese electrode prices have historically led the global market. However, at this time, the firm maintains its Neutral position on GrafTech's shares.
In other recent news, GrafTech International has been navigating industry headwinds while eyeing growth in the electric vehicle (EV) market. The company's financial performance has been impacted by persistent pricing pressures and weak demand, despite efforts to reduce costs. BMO Capital Markets recently adjusted its outlook on GrafTech, reducing the stock's price target while maintaining a Market Perform rating.
The firm anticipates that the combination of pricing pressures, scheduled maintenance, and higher energy costs will likely affect the company's results in the second half of the year.
GrafTech reported a net loss of $15 million and an adjusted EBITDA of $14 million for the second quarter. However, the company also reported a 6% sequential improvement in sales volume and anticipates an increase in sales volume for the full year. GrafTech is actively managing its production capacity and working capital, focusing on safety, sustainability, and EV market initiatives.
Despite near-term challenges, GrafTech remains optimistic about long-term growth opportunities in the steel and EV markets. The company has a total available liquidity of $232 million, which is expected to sustain it in the near term. These are among the recent developments for GrafTech International, as the company continues to adapt to ongoing market challenges.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on GrafTech International Ltd.'s (NYSE:EAF) current financial situation and market performance. The company's market capitalization stands at $475.76 million, aligning with Citi's valuation assessment.
InvestingPro Tips highlight that GrafTech operates with a significant debt burden and may have trouble making interest payments, which could explain Citi's cautious Neutral stance. This financial strain is further evidenced by the company's negative gross profit margin of -2.28% and operating income margin of -13.44% over the last twelve months as of Q2 2024.
Despite these challenges, GrafTech has shown remarkable short-term price performance. The stock has delivered a 138.2% return over the past month and a 57.28% return over the last three months. This recent rally might be related to HEG Limited's increased stake, as mentioned in the article.
However, it's important to note that analysts anticipate a sales decline in the current year, with revenue growth at -34.91% over the last twelve months. This aligns with the article's mention of challenging market conditions in the electrode industry due to weak global steel production.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for GrafTech International Ltd., providing a deeper understanding of the company's financial health and market position.
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