CBT Stock Study (10-27-25)

Posted by Mark on January 21, 2025 at 06:54 | Last modified: October 26, 2025 10:31

I recently did a stock study on Cabot Corp. (CBT, $71.34).

M* writes:

     > Cabot Corp manufactures and sells a variety of chemicals, materials,
     > and chemical-based products. The company organizes itself into the
     > following operating segments based on the product type; the
     > Reinforcement Materials segment which generates maximum revenue
     > provides reinforcing carbon products used in tires, and industrial
     > products such as hoses, belts, extruded profiles, and molded goods;
     > and the Performance Chemicals segment aggregates the specialty
     > carbons, specialty compounds, fumed metal oxides, battery
     > materials, inkjet colorants, and aerogel product lines.

Over the past nine years (FY ends 9/30), the medium-size company has grown sales and earnings at annualized rates of 6.8% and 12.7%, respectively. This excludes negative GAAP earnings in ’18 (primarily due to a significant one-time tax expense related to TCJA despite strong operating performance and healthy cash flow per Google AI) and ’20 [per Google AI, significant nonrecurrent charges include: Purification Solutions divestiture (major) resulting in large asset impairment and loss, valuation allowance (increasing on US deferred tax assets), executive transition costs, and costs associated with other restructuring actions]. Lines are somewhat up, straight (more jagged), and parallel despite sales dip in ’23 and EPS declines in ’19, ’22, and ’24. Five- (10-) year EPS R^2 is 0.56 (0.67) and Value Line (VL) gives an Earnings Predictability score of 60.

Over the past nine years, PTPM is roughly equal to peer and industry averages while ranging from -1.3% in ’20 to 13.2% in ’24 with a last-5-year mean of 8.6%. ROE is also on par with peer and industry averages despite trending up from 11.3% (’16) to 27.1% (’24) with a last-5-year mean of 17.6%. Debt-to-Capital is roughly even with peers and the industry while ranging from 38.4% in ’17 to 63.5% in ’20 with a last-5-year mean of 56.3% (per CFRA, only two of eight NYSE- or Nasdaq-traded peers are currently lower).

Quick Ratio is 1.25 and Interest Coverage is 8.80 per M* who assigns “Narrow” for Economic Moat and gives a Financial Health grade of B (per BI website). VL gives a B++ for Financial Strength.

With regard to sales growth:

• YF projects YOY 5.6% contraction and 3.4% growth for ’25 and ’26, respectively (based on 5 analysts).
• Zacks projects YOY 5.7% contraction and 3.1% growth for ’25 and ’26, respectively (2 analysts).
• VL projects 4.0% annualized growth from ’24-’29.
• CFRA gives ACE contraction of 5.6% YOY and 1.2% per year for ’25 and ’24-’26, respectively (5).
• M* gives a 2-year annualized ACE contraction of 1.1%.

My flat forecast conservatively extends doubtful near-term growth to long-term.

With regard to EPS growth:

• MarketWatch projects 9.8% and 6.2% per year for ’24-’26 and ’24-’27, respectively (based on 5 analysts).
• Nasdaq.com projects 9.6% YOY and 8.9% per year for ’26 and ’25-’27 [1, 2, and 2 analyst(s) for ’25, ’26, and ’27].
• Finviz projects 5-year annualized growth of 6.2% (1).
• YF projects YOY growth of 2.8% and 7.8% for ’25 and ’26, respectively (5).
• Zacks projects YOY growth of 3.4% and 9.6% for ’25 and ’26 (2).
• VL projects 6.1% annualized growth from ’24-’29.
• CFRA gives ACE of 8.0% YOY and 7.9%/year for ’25 and ’24-’26, respectively (5).

My 3.0% forecast is less than either long-term estimate (mean 6.1%). Initial value is ’24 EPS of $6.72/share rather than 2025 Q3 EPS of $7.65 (annualized).

My Forecast High P/E is 15.0. Over the last nine years excluding ’18 and ’20, high P/E falls from 22.9 (’16) to 16.8 (’24) with a last-5-year mean of 16.8 and a last-5-year-mean average P/E of 16.1. I am near bottom of the range (only 10.8 in ’23 is less).

My Forecast Low P/E is 8.0. Over the last nine years excluding ’18 and ’20, low P/E falls from 13.3 (’16) to 9.7 (’24) with a last-5-year mean of 9.9. I am forecasting near the bottom of the range (only 7.8 in ’23 is less).

My Low Stock Price Forecast (LSPF) of $53.80 is default based on initial value given above. This is 24.6% less than the previous closing price and 19.1% less than the 52-week low.

Over the last nine years excluding ’18 and ’20, Payout Ratio (PR) falls from 44.4% in ’16 to 24.7% in ’24 with a last-5-year mean of 29.4%. I am forecasting near bottom of the range at 20.0% (only 19.9% in ’23 is less).

These inputs land CBT in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 11.8%.

PAR (using Forecast Average—not High—P/E) of 6.5% is less than I seek in a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only 8 studies (three outliers including mine excluded leaves too small a sample for anything but anecdotal comparison) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.3%, 5.9%, 14.5, 9.0, and 29.4%, respectively. I am lower on all but Forecast High P/E (15.0). VL’s projected average annual P/E of 14.0 is greater than MS (11.8) and greater than mine (11.5).

MS high / low EPS are $9.79 / $7.41 versus my $7.79 / $6.72 (per share). My high EPS is less due to a lower growth rate. VL is in the middle at $9.50.

MS LSPF of $62.00 implies a Forecast Low P/E of 8.4: less than the above-stated 9.0. MS LSPF is 7.0% less than the default $7.41/share * 9.0 = $66.69 resulting in more conservative zoning. MS LSPF is 15.2% greater than mine, however.

I think MOS is solid in this study because my inputs are near or below analyst/MS/historical estimates/ranges. Adding some anecdotal support is MS 16.3% TAR being 4.5% per year greater than mine.

With regard to valuation, PEG is 3.0 and 0.2 per my projected P/E and M*: overvalued or dirt cheap, respectively. Relative Value [(current P/E) / 5-year-mean average P/E] is also cheap at 0.72.

Per U/D, CBT is a BUY under $69/share. BI TAR criterion is met [116.8 / ((13.57 / 100 ) +1 ) ^ 5] ~ $61.50 with a forecast high price ~$117.

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