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Neo Performance Materials is still a buy, Paradigm says

The stock has made a 20% move, but there is still money to be made on NEO Performance Materials (NEO Performance Materials Stock Quote, Chart, News, Analysts, Financials TSX:NEO).

So says Paradigm Capital analyst J. Marvin Wolff, who says the company, which leads the Western world in rare earth magnets, is on the upswing.

In a research update to clients January 24, Wolff maintained his “Buy” rating and price target of $13.80 on NEO, implying a return of 46%, including dividend.

The analyst says NEO has made moves to restore its EBITDA, has a strong balance sheet, a solid dividend and a low price-to-book ratio.

“At C$9.45, NEO is trading at a market cap of C$394M (US$279M), which equates to 5.1x EV/EBITDA,” he said. “We use 8x EV/EBITDA and a 10% discount rate to value NEO’s traditional business, which gives us a valuation of $11.50. We also add the value of the traction motor business. We use 2031 as the valuation point as EV adoption has pushed out timeframes. We value the traction motor business at $2.33/sh, giving us a target of C$13.80.”

Wolff thinks NEO will post (US) EBITDA of $44.1-million on revenue of $514.0-million in fiscal 2024. He expects EBITDA of $59.6-million on a topline of $492.5-million in fiscal 2025.

“Neo Performance Materials (NEO) is the largest producer of neodymium permanent magnet powders on a global basis. The company benefits from a proven and seasoned management team capable of paving a path to take EBITDA to over $150M over a 3–5-year period. We are of the view that the shares offer uncommon value at these levels and should benefit from a multiple expansion along with the higher profitability as a strong participant in the EV growth curve,” the analyst added.

About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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