Buy this steel processing chemical stock for more than 33% upside, says Jefferies

Jefferies upgraded Quaker Chemical (Quaker Houghton) to a buy rating with a price target of $146, implying a 33% upside, citing improving steel demand, increased infrastructure spending, and the company's ability to pass through raw material costs; analyst Laurence Alexander projects significant EPS growth for every 1% increase in sales, potentially leading to a doubling of the share price in a rapid cyclical expansion and a possible tripling by 2030, though a recession could see the stock fall to $90.

Analysis

Jefferies has upgraded Quaker Houghton (KWR) to a buy rating from hold, increasing its price target to $146, which suggests a potential upside of over 33% from its recent closing price of $109.65. This upgrade counters the stock's more than 22% decline so far in 2025, with Jefferies anticipating a turnaround driven by improving steel demand, increased infrastructure spending, and the company's capacity to pass on rising raw material costs. A key aspect of the bullish thesis is Quaker Houghton's significant operational leverage; analyst Laurence Alexander estimates that for every 1% increase in sales, earnings per share could rise by 3.5% to 4.2%. In a rapid cyclical expansion scenario adding 15% to sales over 2-3 years, Jefferies projects a potential doubling of the share price, stemming from approximately 33% cumulative profit growth from sales, an additional 36% from operating leverage as margins expand to 40%-42% (from the longer-term 36%-38% range), and contributions from maintained 1.5x leverage (~$15/share) and cumulative free cash flow (~$25/share), all without relying on multiple expansion. Looking further ahead, the stock could potentially triple by 2030, reaching $350-$475 per share, if it achieves a 13x-15x multiple comparable to quality compounder peers, supported by leveraging scale advantages, digitalization, automation, integrated analytics, and potential stock buybacks or acquisitions. However, Jefferies also outlines a recessionary scenario where the stock could fall to $90 per share due to an inability to pass along raw material costs and weaker demand.

Key Decisions for Investors

• Investors should consider the significant upside potential for Quaker Houghton highlighted by Jefferies, particularly given its operational leverage and the stock's substantial pullback of over 22% in 2025.
• Monitor key macroeconomic indicators such as steel demand and infrastructure spending trends, alongside the company's ability to manage raw material costs, as these are critical drivers for the projected earnings growth and realization of the price target.
• Carefully weigh the bullish cyclical recovery scenario, which could double or triple the share price, against the clearly defined recessionary risk that could see the stock decline to $90 per share, before making investment decisions.