OM Group gains after KeyBanc upgrade

January 30, 2013

NEW YORK (AP) -- A KeyBanc analyst upgraded chemicals and materials maker OM Group on Wednesday, saying the planned sale of a business unit is a boon.

THE SPARK: KeyBanc Capital Markets' Ivan Marcuse raised OM Group Inc. to "Buy" from "Hold" and set a $34 price target.

THE BIG PICTURE: OM Group Inc. announced last week that it was selling part of its advanced materials business for at least $325 million in cash, with potential future payments of up to $110 million over the next three years. The sale is expected to close before the end of April.

The Cleveland company had said that the sale, which includes its cobalt refinery assets in Finland, is part of its shift toward technology-based businesses with better growth prospects and more predictable profit trends.

THE ANALYSIS: Declines in cobalt prices have pressured OM Group's earnings in the past, Marcuse said in a client note Wednesday, so the sale should benefit the company.

Without the division being sold, about half of OM Group's sales will likely come from Europe, Marcuse said. The company is dealing with the weak economy there, and earnings in the next two quarters are "problematic to estimate," he said. But the prospect of an improved economy in Europe this year and next could bolster OM Group.

SHARE ACTION: Up 19.5 percent, through Tuesday's close, since the advanced materials business sale was announced on Jan. 21. Shares added another 64 cents, or 2.3 percent, to $28.34 in afternoon trading Wednesday.