Kraton's Story Is A Little Complicated, But Can Still Offer Some Value

It's been a while since I last wrote on Kraton (NYSE:KRA), but I had some valuation issues and thought there might be opportunities to buy the shares at lower prices. Those opportunities did in fact materialize (there have been at least three meaningful pullbacks) and the shares have recently been quite a bit stronger - up over 60% in the past year despite multiple negative revisions and challenging input cost developments.

Kraton could still offer some upside here, but management has to execute. Efforts to shift the company toward higher-value applications have delivered mixed results, and the size of the Arizona Chemical deal is such that strong execution/integration is an absolute must. I do like the increasing diversification of the business, though, as well as its exposure to non-hydrocarbon inputs and relatively attractive markets like construction/infrastructure, medical, and adhesives. With the company potentially on a trajectory toward 20% EBITDA margins and meaningful improvement in free cash flows, $30 looks like a pretty reasonable fair value.

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Kraton's Story Is A Little Complicated, But Can Still Offer Some Value