Research from Water Tower Research, Water Tower Research

Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Research from Water Tower Research

Equity Research Firm

Thematic (Sector/Industry)

Multiple Countries / Thematic (Sector/Industry)

<h3>KEY HIGHLIGHTS</h3>
<ul>
<li>WTR-CMI last week.&nbsp;For the second week in a row, the stock market posted solid gains, anticipating a better earnings season in some respects, with the Russell 2000 delivering a 6% appreciation, the S&amp;P 500 posting a 4% improvement, and our WTR-CMI index of 30 chemicals and materials stocks delivering a slightly better 4.1% performance. This was led by KWR’s 14.4% jump, which may have benefited from a positive initiation of coverage report from RBS and SHW’s 3Q22 results and 4Q22 guidance that appear to have been stronger than feared, given PPG’s pre-announcement the week prior. HXL’s 3Q22 disappointed, as the stock was one of only three in our index to post a price decline for the week.</li>
<li>Europe’s commercial vehicle market remains down.&nbsp;While September new passenger vehicle sales posted a modest improvement from the depths of 2021 production reduction,&nbsp;the commercial vehicle market&nbsp;remained in negative territory from a Y/Y perspective, declining 6.6% against an easy year-ago comp and finishing the first nine months of 2022 down 17.6%.</li>
<li>Food inflation hits organic produce too.&nbsp;Although sales of organic produce in the US held up well through the inflation run-up,&nbsp;the latest data show&nbsp;even this category is feeling the price pinch, as sales volumes have begun to decline on a Y/Y basis, albeit not as fast as in the conventional produce aisle. Higher prices may nonetheless provide enough of an incentive for organic farmers to continue to cultivate and even expand their production acres, which we believe will be a continued positive for ag-tech companies such as BIOX, as well as ag majors with a strong bio-based product portfolio, such as FMC and CVTA.</li>
<li>An EV investment tsunami.&nbsp;Quickly reaching the point of no return, the auto industry is planning to invest a whopping $1.2 trillion through the end of this decade in EV production, as well as in battery and even battery material production initiatives. Automakers have forecast plans to build 54 million EVs in 2030, representing more than 50% of total vehicle production, and install 5.8 terawatt hours of battery production capacity by 2030,&nbsp;according to the analysis. The implied demand for battery metals and other materials would appear to support aggressive investment in new mines, new resources, and expansion of existing mineral production and manufacturing of battery-grade materials. If only government regulatory and permitting processes weren’t stuck in 1970s…</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/307/149/original/image_58248951531667348462011.png?1667348470" class="editor-image img-responsive" data-smartkarma-image-id="307149"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Biologics continue to make inroads here and abroad.&nbsp;Farmers’ portfolios of alternatives to chemical-based pesticides continue to expand. Fungus-based bioinsecticides have recently been&nbsp;approved for use in Brazil&nbsp;and a microbial-based fungicide gained&nbsp;EPA approval in the US. As farmers in North and South America continue to grapple with old adversaries such as pest tolerance and increasingly toxic chemical pesticide alternatives, new issues, such as stricter regulations, high costs of chemical inputs, and improving efficacy of bio-based products, demand for biological inputs should continue to increase, despite the snarled supply chains, high diesel prices, and geopolitical tensions. Companies such as BIOX and BHIL, as well as established ag majors with growing biotech business units, such as FMC and CTVA, look to benefit from these trends.</p>
<h2>Energy Technology &amp; Battery Technology</h2>
<p>Companies are doing their part.&nbsp;A week doesn’t go by without new announcements of industry participants signing supply deals, looking to open or expand metal mining resources, or build out converting plants to ensure the automotive and transportation industries have the materials they need to meet their ambitious electrification goals to address growing government pressures to halt climate change. Last week was no exception, as we’ve seen French mining major&nbsp;Imerys announce plans to mine lithium&nbsp;in France and Japan’s&nbsp;Panasonic sign an MoU&nbsp;with NMG to establish a North American source of graphite. Furthermore, Standard Lithium&nbsp;announced the successful commissioning&nbsp;of a LiCl-to-LiOH conversion plant in Arkansas, using a direct lithium extraction process, while&nbsp;Rock Tech announced&nbsp;the creation of a joint venture to secure spodumene supply for its conversion plant. One area we see increasing interest in is nickel production. Once a “boring” industrial metal with demand growing at a GDP-minus rate, high nickel content in EV batteries has led to the realization that this abundant metal may also be in short supply, given anticipated demand, existing mine depletions, and new resources being in undesirable geographies. The growing understanding of the&nbsp;nickel shortage&nbsp;potential is a positive for newer nickel developers, such as TMC, which may see their stock prices respond to increased investor interest in the sector.</p>
<p>Government giveth, government taketh away.&nbsp;Last week, we highlighted established lithium players, such as ALB, being selected to receive DOE loans aimed at establishing domestic critical resource infrastructure and it seems even&nbsp;newer pre-revenue entrants&nbsp;are now beginning to benefit from the program, which gives investors reasons to believe other potential applicants, such as WWR, LAC, PLL, etc., may gain access to funding to further their commercial plans. However, as we mentioned previously,&nbsp;realization seems to be spreading&nbsp;that all this money, which comes with strings attached in the first place, may not do as much good as hoped for without a major overhaul of current byzantine rules, regulations, and permitting processes, which appear designed in many cases to intentionally preclude such projects as new mines, new plants, or even new recycling facilities to be constructed in developed countries, including the US. When combined with good intentioned but&nbsp;short-sighted EV rebate regimes, such as the one signed into law recently here, the dichotomy between energy transformation targets and physical and political reality of often divergent regulatory and tax schemes becomes even more apparent. As the movie title said, something’s gotta give.</p>
<h2>Rating and Price Target Changes</h2>
<p>AVNT –&nbsp;Morgan Stanley lowered its price target (PT) to $37 from $50 and maintained its Equal Weight rating.</p>
<p>AXTA –&nbsp;Wells Fargo raised its PT to $26 from $24 and maintained its Equal Weight rating; BNP Paribas Exane downgraded the stock to Neutral from Outperform, with a PT of $27; Morgan Stanley lowered its PT to $28 from $30 and maintained its Equal Weight rating.</p>
<p>EMN –&nbsp;UBS lowered its PT to $96 from $105 and reiterated its Buy rating; Credit Suisse lowered its PT to $95 from $102 and reiterated its Outperform rating; CFRA raised its PT to $115 from $110 and reiterated its Buy rating.</p>
<p>HXL –&nbsp;CFRA downgraded the stock to Hold from Buy and lowered its PT to $61 from $65; RBC raised its PT to $58 from $57 and maintained its Sector Perform rating; Wells Fargo raised its PT to $60 from $58 and maintained its Equal Weight rating.</p>
<p>KWR –&nbsp;RBC initiated coverage of the stock with an Outperform rating and $196 PT.</p>
<p>LAC –&nbsp;Deutsche Bank lowered its PT to $34 from $36 and reiterated its Buy rating.</p>
<p>SXT –&nbsp;Baird lowered its PT to $70 from $90 and maintained its Neutral rating.</p>
<p>SHW –&nbsp;CFRA raised its PT to $266 from $235 and maintained its Hold rating; Deutsche Bank lowered its PT to $265 from $275 and reiterated its Buy rating; Wells Fargo raised its PT to $230 from $215 and maintained its Equal Weight rating; UBS raised its PT to $242 from $232 and maintained its Neutral rating; Baird lowered its PT to $275 from $325 and reiterated its Outperform rating; RBC raised its PT to $280 from $273 and reiterated its Outperform rating; BMO raised its PT to $251 from $244 and maintained its Market Perform rating; KeyBank lowered its PT to $265 from $290 and reiterated its Overweight recommendation.</p>
<h2>Recent Reports</h2>
<p>Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look</p>
<p>TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS

WTR-CMI last week.&nbsp;For the second week in a row, the stock market posted solid gains, anticipating a better earnings season in some respects, with the Russell 2000 delivering a 6% appreciation, the S&amp;P 500 posting a 4% improvement, and our WTR-CMI index of 30 chemicals and materials stocks delivering a slightly better 4.1% performance. This was led by KWR’s 14.4% jump, which may have benefited from a positive initiation of coverage report from RBS and SHW’s 3Q22 results and 4Q22 guidance that appear to have been stronger than feared, given PPG’s pre-announcement the week prior. HXL’s 3Q22 disappointed, as the stock was one of only three in our index to post a price decline for the week.
Europe’s commercial vehicle market remains down.&nbsp;While September new passenger vehicle sales posted a modest improvement from the depths of 2021 production reduction,&nbsp;the commercial vehicle market&nbsp;remained in negative territory from a Y/Y perspective, declining 6.6% against an easy year-ago comp and finishing the first nine months of 2022 down 17.6%.
Food inflation hits organic produce too.&nbsp;Although sales of organic produce in the US held up well through the inflation run-up,&nbsp;the latest data show&nbsp;even this category is feeling the price pinch, as sales volumes have begun to decline on a Y/Y basis, albeit not as fast as in the conventional produce aisle. Higher prices may nonetheless provide enough of an incentive for organic farmers to continue to cultivate and even expand their production acres, which we believe will be a continued positive for ag-tech companies such as BIOX, as well as ag majors with a strong bio-based product portfolio, such as FMC and CVTA.
An EV investment tsunami.&nbsp;Quickly reaching the point of no return, the auto industry is planning to invest a whopping $1.2 trillion through the end of this decade in EV production, as well as in battery and even battery material production initiatives. Automakers have forecast plans to build 54 million EVs in 2030, representing more than 50% of total vehicle production, and install 5.8 terawatt hours of battery production capacity by 2030,&nbsp;according to the analysis. The implied demand for battery metals and other materials would appear to support aggressive investment in new mines, new resources, and expansion of existing mineral production and manufacturing of battery-grade materials. If only government regulatory and permitting processes weren’t stuck in 1970s…

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
Biologics continue to make inroads here and abroad.&nbsp;Farmers’ portfolios of alternatives to chemical-based pesticides continue to expand. Fungus-based bioinsecticides have recently been&nbsp;approved for use in Brazil&nbsp;and a microbial-based fungicide gained&nbsp;EPA approval in the US. As farmers in North and South America continue to grapple with old adversaries such as pest tolerance and increasingly toxic chemical pesticide alternatives, new issues, such as stricter regulations, high costs of chemical inputs, and improving efficacy of bio-based products, demand for biological inputs should continue to increase, despite the snarled supply chains, high diesel prices, and geopolitical tensions. Companies such as BIOX and BHIL, as well as established ag majors with growing biotech business units, such as FMC and CTVA, look to benefit from these trends.
Energy Technology &amp; Battery Technology
Companies are doing their part.&nbsp;A week doesn’t go by without new announcements of industry participants signing supply deals, looking to open or expand metal mining resources, or build out converting plants to ensure the automotive and transportation industries have the materials they need to meet their ambitious electrification goals to address growing government pressures to halt climate change. Last week was no exception, as we’ve seen French mining major&nbsp;Imerys announce plans to mine lithium&nbsp;in France and Japan’s&nbsp;Panasonic sign an MoU&nbsp;with NMG to establish a North American source of graphite. Furthermore, Standard Lithium&nbsp;announced the successful commissioning&nbsp;of a LiCl-to-LiOH conversion plant in Arkansas, using a direct lithium extraction process, while&nbsp;Rock Tech announced&nbsp;the creation of a joint venture to secure spodumene supply for its conversion plant. One area we see increasing interest in is nickel production. Once a “boring” industrial metal with demand growing at a GDP-minus rate, high nickel content in EV batteries has led to the realization that this abundant metal may also be in short supply, given anticipated demand, existing mine depletions, and new resources being in undesirable geographies. The growing understanding of the&nbsp;nickel shortage&nbsp;potential is a positive for newer nickel developers, such as TMC, which may see their stock prices respond to increased investor interest in the sector.
Government giveth, government taketh away.&nbsp;Last week, we highlighted established lithium players, such as ALB, being selected to receive DOE loans aimed at establishing domestic critical resource infrastructure and it seems even&nbsp;newer pre-revenue entrants&nbsp;are now beginning to benefit from the program, which gives investors reasons to believe other potential applicants, such as WWR, LAC, PLL, etc., may gain access to funding to further their commercial plans. However, as we mentioned previously,&nbsp;realization seems to be spreading&nbsp;that all this money, which comes with strings attached in the first place, may not do as much good as hoped for without a major overhaul of current byzantine rules, regulations, and permitting processes, which appear designed in many cases to intentionally preclude such projects as new mines, new plants, or even new recycling facilities to be constructed in developed countries, including the US. When combined with good intentioned but&nbsp;short-sighted EV rebate regimes, such as the one signed into law recently here, the dichotomy between energy transformation targets and physical and political reality of often divergent regulatory and tax schemes becomes even more apparent. As the movie title said, something’s gotta give.
Rating and Price Target Changes
AVNT –&nbsp;Morgan Stanley lowered its price target (PT) to $37 from $50 and maintained its Equal Weight rating.
AXTA –&nbsp;Wells Fargo raised its PT to $26 from $24 and maintained its Equal Weight rating; BNP Paribas Exane downgraded the stock to Neutral from Outperform, with a PT of $27; Morgan Stanley lowered its PT to $28 from $30 and maintained its Equal Weight rating.
EMN –&nbsp;UBS lowered its PT to $96 from $105 and reiterated its Buy rating; Credit Suisse lowered its PT to $95 from $102 and reiterated its Outperform rating; CFRA raised its PT to $115 from $110 and reiterated its Buy rating.
HXL –&nbsp;CFRA downgraded the stock to Hold from Buy and lowered its PT to $61 from $65; RBC raised its PT to $58 from $57 and maintained its Sector Perform rating; Wells Fargo raised its PT to $60 from $58 and maintained its Equal Weight rating.
KWR –&nbsp;RBC initiated coverage of the stock with an Outperform rating and $196 PT.
LAC –&nbsp;Deutsche Bank lowered its PT to $34 from $36 and reiterated its Buy rating.
SXT –&nbsp;Baird lowered its PT to $70 from $90 and maintained its Neutral rating.
SHW –&nbsp;CFRA raised its PT to $266 from $235 and maintained its Hold rating; Deutsche Bank lowered its PT to $265 from $275 and reiterated its Buy rating; Wells Fargo raised its PT to $230 from $215 and maintained its Equal Weight rating; UBS raised its PT to $242 from $232 and maintained its Neutral rating; Baird lowered its PT to $275 from $325 and reiterated its Outperform rating; RBC raised its PT to $280 from $273 and reiterated its Outperform rating; BMO raised its PT to $251 from $244 and maintained its Market Perform rating; KeyBank lowered its PT to $265 from $290 and reiterated its Overweight recommendation.
Recent Reports
Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look
TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.  The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Mat-Chem Notes for the Week Ended October 28, 2022