Kraton (NYSE:KRA), a chemicals company that handles a range of polymers, blasted up around 15% in trading yesterday as reports emerged the company may be looking for a buyer. Going into this morning's trading session, meanwhile, some profit-taking emerged until a rebound kicked in. Those interested in buying Kraton will find themselves in good company, as the prevailing attitude from financial analysts is to buy Kraton. That's been the case since May.
Kraton Products Prove a Major Draw
The company, at last report, is “exploring options” that may include an ultimate sale of the company. Though no such move has been formally announced, reports also note that several potential buyers—from peers in the industry to private equity firms—have expressed an interest in buying in. In turn, Kraton turned to JPMorgan Chase (NYSE:JPM) to advise it on how to proceed.
Kraton has been having a rough time of things lately, with higher raw material costs hurting profitability and a 13% decline seen in adjusted earnings not doing it any favors either. At the time, word from the company's CEO, Kevin Fogarty, suggested profit margins were likely to recover as we went into the second and third quarters of the company's fiscal year. This seemed likely given the sheer range of Kraton products, including polymers involved in floor varnish, baby diapers, road asphalt and fiber optic cables, among other things.
If this isn't the case, however, moving to find a buyer now while the company is still comparatively high—over the last year, the company's stock has nearly doubled in value—could be a smart move. Motley Fool analyst Rich Smith noted that such a move would be “...a good way for management to help 'lock in' shareholders' winnings before sentiment turns against the stock.”
Another recent development may help the company find that buyer; Kraton recently received Critical Guidance Recognition from the Association of Plastic Recyclers for a line of polyethylene bottles the company produces. Landing such recognition asserts that Kraton's polyethylene bottles are extremely recyclable, and only companies that meet the APR's substantial sustainability challenges can reach Critical Guidance Recognition status.
What Are Financial Analysts Saying About Kraton Corporation Stock?
Kraton stock has done well in the recent past, we've seen, and sentiment has not yet turned against the stock as Rich Smith feared. Financial analysts, based on our latest research, are all in favor of buying in on Kraton, as the company has held a consensus rating of “buy” since May.
A year ago, the company had two “buy” ratings, two “hold” and one “sell” to its credit. Six months ago, that shifted to two “buy”, one “hold” and one “sell.” Today, we have just one “buy” rating to even discuss. It's a unanimous figure, which is good, but unanimous for a body of one analyst.
Right now, the one analyst offering comment on the company is Loop Capital, who back in June raised its price target on the company from $55 to $58. Given that Kraton stock closed yesterday at $36.35, that represents substantial upside potential.
Less formal analysis, however, suggests potential gains afoot. Kraton stock saw a massive surge in call options purchases, with 1,576 such options purchased. Normally, the company sees 82 such options purchased. Meanwhile, some insiders sold—senior vice president Vijay Mhetar sold 4,000 shares back in April, though he currently owns 39,354 shares at last report. With just 3.11% of the company owned by insiders, however, this is a minor move at best. In fact, institutional investors seem to be buying Kraton in large numbers. Institutional investors currently hold 93.8% of the stock, at last report, and several different institutions—from Mutual of America Capital Management to Squarepoint Ops and beyond—increased their stakes in the company recently.
