Why Sasol Stock Soared Nearly 10% Higher Today
Key Points
He believes it can prosper with growth in a key category.
South Africa-based chemical company Sasol (NYSE: SSL) experienced a significant leap in its U.S.-listed equity on Hump Day. Much of this was due to a recommendation upgrade from an analyst at a top bank; with this, Sasol's American Depositary Shares (ADSes) surged to close the day almost 10% higher.
Edging into buy territory
Well before market open, Bank of America Securities prognosticator Sashank Lanka changed his rating on Sasol from neutral to buy. He also lifted his price target on the company's South Africa-listed shares to 270 rand ($18.86) from 200 rand ($12.49).
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According to reports, Lanka waxed bullish on Sasol's opportunities in the oil segment. He believes these could more than double the company's free cash flow (FCF) to 33 billion rand ($2.1 billion) in its current fiscal year, then drop to a still-considerable 26 billion rand ($1.6 billion) in 2028.
With that kind of improvement, the analyst speculated that Sasol might have enough scope to reinstate its dividend. In its full-year earnings announcement published at the end of August, the company said it was effectively suspending the payout because net debt exceeded its threshold for paying dividends.
Caution warranted
We're still at, or near, the bottom of a down cycle in the global chemicals industry, and it doesn't feel as if the recovery will be quick.
While Sasol has numerous strengths as a business, a major weakness is that it operates in a sector with few clear catalysts for a general upswing. I feel this will remain a drag on the company, no matter how well the oil operations do, so I'd remain very cautious on this stock.
Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.