Seaport Global Securities has begun coverage on Element Solutions Inc (NYSE: NYSE:ESI), issuing a Buy rating and setting a price target of $33.00.
The firm's focus on expanding its analysis within the electronic materials industry led to a positive outlook on Element Solutions, particularly noting the company's strength in its Electronics segment.
Element Solutions' Electronics segment is recognized for supplying materials crucial for printed circuit boards and advanced packaging applications.
The materials are considered vital for the continued advancement of chip performance as physical limitations on chip size are being reached.
Seaport Global Securities highlighted the importance of Element Solutions' offerings in enabling new chip designs that aim to enhance performance while minimizing size and power consumption.
With a broad portfolio, established customer relationships, and expertise in applications, Element Solutions is expected to increase its market share in this expanding sector. The Industrial segment of the company, which delivers coatings and surface treatment products, also contributes to Element Solutions' capital-efficient operations and robust cash flow generation.
Seaport Global Securities' optimism is further bolstered by Element Solutions' Q2 earnings release, where the company expressed "growing confidence in several years of record earnings ahead."
The firm anticipates that even if the recovery in the electronics and industrial sectors is gradual, Element Solutions is well-placed to surpass market growth and achieve significant earnings growth.
The $33 price target is founded on a 15.4x forward twelve months (FTM) EBITDA estimate beginning in Q3:25. This valuation compares favorably to the current valuation, which is based on 14.1x the firm's FTM EBITDA estimate and sits at the lower end of the fair value range of 14x-16x EBITDA projected by Seaport Global Securities.
In other recent news, Element Solutions reported a 20% year-over-year growth in its financial results for the second quarter of 2024, with its electronics segment witnessing a 10% volume growth. However, the Industrial & Specialty segments experienced softer demand in Europe.
In a strategic move, Element Solutions has agreed to divest its MacDermid Graphics Solutions business to XSYS for approximately $325 million. This decision is part of the company's strategic reshaping of its business portfolio. The company also disclosed the planned retirement of its Executive Vice President, General Counsel, and Secretary, John E. Capps, set for some time in 2025.
BMO Capital Markets maintained a positive outlook on shares of Element Solutions, reiterating an Outperform rating. The firm's optimism is rooted in the company's strategic maneuvers aimed at enhancing its focus on high-margin and high-growth sectors, specifically within the electronics and semiconductor industries.
InvestingPro Insights
Element Solutions Inc's financial metrics and market performance align well with Seaport Global Securities' bullish outlook. According to InvestingPro data, the company's market capitalization stands at $6.29 billion, with a P/E ratio of 23.78 over the last twelve months as of Q2 2024. This valuation appears reasonable, especially considering an InvestingPro Tip that suggests ESI is trading at a low P/E ratio relative to its near-term earnings growth.
The company's revenue for the last twelve months as of Q2 2024 was $2.36 billion, with a gross profit margin of 41.28%. This solid financial performance is complemented by another InvestingPro Tip indicating that Element Solutions has been profitable over the last twelve months, reinforcing the analyst's positive stance on the company's earnings potential.
Furthermore, ESI's strong market position is reflected in its impressive 38.61% one-year price total return. This performance aligns with the InvestingPro Tip highlighting the company's strong return over the last five years, suggesting a consistent track record of value creation for shareholders.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights, with 7 more tips available for Element Solutions Inc. These additional insights could provide valuable context for understanding the company's potential in the evolving electronic materials industry.
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