On Wednesday, JPMorgan shifted its stance on Umicore SA (UMI:BB) (OTC: OTC:UMICY), upgrading the stock from Underweight to Overweight. The financial firm also adjusted the price target to €16.50, a decrease from the previous target of €22.50. The revision comes after a period of sustained bearish outlook on the company by the analyst since 2020.
The upgrade reflects a market acknowledgment of the challenges faced by Umicore's battery materials division. These challenges include high competitive pressures, limited technology differentiation, and significant industry overcapacity, exacerbated by a slowdown in electric vehicle (EV) demand and high capital expenditure intensity. The analyst believes that these factors are now well understood by the market.
JPMorgan's reassessment also takes into account the potential for more radical actions by Umicore's new CEO to set a viable path forward, with a strategic update likely towards the end of 2024. The analyst's refreshed sum-of-the-parts (SOTP) valuation scenarios for the end of 2026 suggest that the risk-reward balance for Umicore has become more attractive.
The base-case valuation is set at €16.50, with a bull-case scenario at €22.50. A bear-case scenario, which involves a complete exit from the battery materials business—a move the company dismissed last week—places the valuation at €13.60. This bear-case valuation is close to Umicore's current share price, indicating that the risks are now largely factored into the stock's valuation.
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