On Friday, Goldman Sachs issued a downgrade for Croda (LON:CRDA) International shares, moving its stance from Neutral to Sell. The firm also significantly reduced its price target to £24.30 from the previous £38.00, signaling a cautious position on the company's growth prospects. The stock, currently trading at $17.43, sits near its 52-week low of $16.40, having declined about 36% over the past six months. According to InvestingPro analysis, the stock's RSI indicates oversold conditions, suggesting potential value for contrarian investors.
The downgrade was prompted by concerns over the short to medium-term growth outlook for Croda, particularly in the Care Chemicals and Life Sciences segments. Goldman Sachs analysts cited a combination of factors, including US-China trade tariffs and raw material risks, which they believe could restrict growth in the skincare and cosmetics sectors. Additionally, these headwinds are expected to affect Crop Protection and delay an anticipated recovery in Healthcare. Despite these challenges, InvestingPro data shows the company maintains a "GOOD" overall financial health score, with particularly strong metrics in profitability and cash flow management.
Goldman Sachs forecasts a substantial slowdown in Croda's organic sales growth for the financial year 2025, projecting an increase of merely 0.3% compared to the earlier estimate of 4.7%. This estimate stands in stark contrast to the 3% organic growth rate expected for the company's Consumer Ingredient peers, excluding the 8% organic sales growth (OSG) forecasted for Novonesis.
The analysts also predict that these challenges will lead to a decrease in Croda's adjusted EBIT, anticipating a 6% decline for the financial year 2025. This revised outlook reflects a more bearish view compared to the sector average, which is expected to see an upside potential of around 13%.
Goldman Sachs' decision to lower the price target by approximately 36% to 2430p is based on a discounted cash flow analysis. The new target suggests around a 7% downside potential from the current levels, compared to the sector's average upside. This revision indicates a significant shift in expectations for Croda's financial performance over the next 12 to 18 months.
In other recent news, Jefferies analyst Charlie Bentley has revised the price target for Croda International, lowering it from GBP50.00 to GBP46.00 while maintaining a Buy rating on the stock. This adjustment precedes the company's first-quarter sales report, expected on April 23, 2025. Bentley anticipates Croda International to report revenues of GBP417 million, which is slightly below the consensus estimate of GBP428 million. Despite the lower price target, Bentley has not significantly altered the earnings forecasts for the company. The revised target reflects analyses of peer multiples and discounted cash flow, considering mid-term margins. Bentley also notes that improving asset utilization and addressing under-earning in Croda's core business could significantly boost earnings. Additionally, Croda's valuation multiples are at multi-year lows compared to its peers, indicating potential undervaluation. The upcoming sales report will provide further insights into Croda's financial performance and industry standing.
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