NEO stock has price target chopped at Paradigm

Following a quarter that he characterized as “lighter than expected”, Paradigm Capital analyst J Marvin Wolff has cut his price target on Neo Performance Materials (Neo Performance Materials Stock Quote, Chart, News, Analysts, Financials TSX:NEO).

On March 15, NEO reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted a Net Loss of $1.13-million on revenue of $126.7-million.

“Neo continues to lay the groundwork for our long-term ambitions in the critical material and electric vehicle space,” CEO Rahim Suleman said. “Our rare earth magnet plant construction in Estonia remains on track, and we have recently started the commissioning process for our relocated environmental catalyst plant. Our teams have implemented new cost-savings measures and are continuing to optimize our production infrastructure to meet our customers where they are located. Our results for the year 2023 were negatively impacted by declining rare earth prices and lower volumes in China due to the slowing economic activity. In Q4, our results were particularly negatively impacted by our rare metals segment due to specific factors affecting 2023. The full-year results for rare metals were at a record-setting level and we expect that 2024 will also be a strong year.”

Wolff summarized where NEO is right now.

“NEO’s traditional business lines are normalizing and management is streamlining operations,” he said. “We are lowering our 2024 forecasts. We have reduced our 2026 traction motor magnet output to 3,000 tpa from 4,000 tpa to reflect slower EV acceptance in North America and Europe. Consequently, our 2026e EBITDA is $94M, down from $114M prior. We use 8x EV/EBITDA (unchanged) and a 10% discount rate (unchanged) to value NEO. We are reducing our target to $13.50 (from $16.00). Shares are trading at 0.46x BV and yield 8.8%”

In a research update to clients March 18, Wolff maintained his “Buy” rating on NEO but lowered his price target on the stock from $16.00 to $13.50, implying a return of 121% at the time of publication.

The analyst thinks the company will post EBITDA of (US) $43.5-million on revenue of $612.5-million in fiscal 2024. He expects those numbers will improve to EBITDA of $69.0-million on a topline of $690.5-million the following year.