
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.
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