Piper Jaffray is out with a big call on Calgon Carbon (NYSE:CCC), upgrading the shares to Overweight from Neutral:
Raising CCC shares to Overweight ahead of stabilizing trends in 2H09. Whilewe fully expect 2Q results to be weak, we recommend investors accumulate sharesof CCC as we believe the risk/reward profile has become compelling. Sincemid-April, CCC shares have fallen by nearly 33% while the S&P 500 hasappreciated by 14%. We believe investor expectations have been reset and wouldlook for commentary on the 2Q earnings call around stabilizing end market demand(albeit still at low levels) to serve as a positive catalyst.
Activated carbon can be deferred (and it is currently), but we expect demandto recover. In Calgon Carbon's largest market (municipal water), we believe thatpurchases are being deferred, particularly in taste/odor applications. As we look out6-12 months, we believe that demand will recover. Municipal water spend has beencurtailed industry-wide as utilities await allocation of stimulus dollars. As thisallocation process draws closer, we believe that municipalities will begin to moveahead with projects and normal upgrades – a positive for activated carbon &equipment (notably CCC's UV disinfection equipment) sales.
Mercury market presents upside at current valuations. While we continue tohave reservations around the mercury removal market, we believe the currentvaluation is providing a relatively inexpensive call option on the sizeable upsidepotential this market presents should a federal mercury removal mandate becreated. As we draw closer to state-level requirements on Jan 1, 2010, we believecontract awards will be announced and assuming CCC captures a reasonable share,this would present positive catalysts.
Action: Piper Jaffray has been one of the most bearish firms on the name and their upgrade is bound to generate interest in the stock. I believe anything below $13.20 early today is a buy and expect shares to go north of $13.50.