Seaport Global Securities recently revised its investment stance on Stepan Company (NYSE:SCL), upgrading the stock rating to Buy from Neutral and assigning a price target of $75.00. This valuation represents a potential upside of approximately 37% relative to the prevailing trading price of $54.70. The upgrade reflects Seaport’s positive assessment of Stepan’s earnings momentum and operational strategies.
According to the firm’s analysis, the fourth quarter is expected to deliver Stepan's fourth consecutive quarter of year-on-year earnings growth. This uptrend is attributed chiefly to the sustained commissioning and scaling up of Stepan’s Pasadena alkoxylation facility, which plays a pivotal role in the company’s forecasted margin enhancement anticipated by 2026. Such operational enhancements come on the heels of an observed 5.35% rise in revenue over the preceding twelve months, with analysts forecasting an 8% revenue increase for fiscal year 2025.
Seaport Global highlighted Stepan's proactive adjustment of surfactant product pricing to synchronize with fluctuations in oleochemical raw material costs — a move deemed instrumental following recent decreases in these costs. Furthermore, the company is actively refining its product portfolio, prioritizing higher-value surfactants with applications in the agricultural and oilfield sectors. This focus aims to improve overall gross profit margins, which currently linger at a modest 11.94%, as identified by InvestingPro. Their research underscores margin dynamics as critical to evaluating companies such as Stepan.
While some ambiguity surrounds earnings improvement in Stepan’s Polymers segment, Seaport remains cautiously optimistic about a pending volume rebound in roofing insulation products, driven by expected declines in interest rates. However, Polymers organic growth is anticipated to remain subdued through the fourth quarter, with positive growth projected from the following quarter. Such short-term challenges notwithstanding, Stepan’s stock has delivered a robust 15.5% return year-to-date, surpassing average historical performance.
In line with its strategic refocusing, Stepan recently divested assets including its Philippines operation and the Lake Providence manufacturing facility in Louisiana. These divestitures form part of an ongoing effort to rationalize production capacity and enhance manufacturing efficiency. Financially, Seaport projects Stepan’s net debt to EBITDA ratio will fall below 2.5x by the end of 2025, marking the company’s lowest leverage position since mid-2023. This financial strengthening complements Stepan’s notable 55-year streak of uninterrupted dividend increases, currently yielding 2.89%, which InvestingPro recognizes as a hallmark of the company’s fiscal stability.
Stepan’s third quarter 2025 earnings report revealed results that fell short of market expectations, recording earnings per share of $0.48 compared to the anticipated $0.62, alongside revenue of $590.28 million versus an expected $593.65 million. The company continues to optimize its operations through strategic asset sales, exemplified by the aforementioned disposal of the Lake Providence plant, and the sale of its Philippine subsidiary to Masurf, Inc., a part of Musim Mas Holdings Pte. Ltd., with financial terms undisclosed.
In governance updates, the board approved the adoption of a Key Executive Severance Benefit Plan, designed to provide severance compensation to certain executives under specified involuntary termination scenarios. This initiative, recommended by the Human Capital and Compensation Committee, underpins Stepan's efforts to align executive incentives with its strategic growth objectives and operational efficiency measures.
Collectively, these developments depict a company actively navigating near-term operational challenges while laying groundwork for sustainable growth and profitability, supported by prudent financial management and strategic portfolio refinement.