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Cabot Corporation (CBT - Snapshot Report) recently delivered its 5th consecutive positive earnings surprise as earnings per share grew 15% year-over-year. And management provided a positive outlook for 2012, prompting analysts to revise their estimates higher.

It is a Zacks #2 Rank (Buy) stock.

The company also pays a dividend that yields a solid 1.8%. Valuation is reasonable too, with shares trading at just 13x forward earnings.

Company Description

Cabot Corp. is a specialty chemicals and performance materials company. Some of its major products include: carbon black, fumed silica, cesium formate drilling fluids, inkjet colorants and aerogels.

The company also recently closed a $450 million sale of its tantalum business to an Australian miner. Tantalum is a high performance metal used in electronics products, mostly capacitors.

Cabot was founded in 1882 and is headquartered in Boston. It has a market cap of $2.5 billion.

2012 Off to a Good Start

Cabot delivered better than expected results for the first quarter of its fiscal 2012 on February 1. Earnings per share came in at 61 cents, handily beating the Zacks Consensus Estimate of 55 cents. It was a solid 15% increase over the same quarter in 2010.

Net sales rose 10% to $762 million. In the company's Core Segment - Rubber Blacks (which accounted for 2/3rds of sales), revenue was up 12%.

Margin expansion in the Rubber Blacks more than offset 9% lower volumes, driving a 15% increase in operating income year-over-year.

Estimates Rising

Management provided an encouraging outlook for 2012, stating that they are seeing increased demand as customers replenish inventories after a significant drawdown during the previous quarter.

Analysts revised their estimates significantly higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $3.06, representing 2% growth over 2011 EPS. The 2013 consensus estimate is currently $3.60, corresponding with 18% EPS growth.

Solid Dividend

Cabot also pays a dividend that yields a solid 1.8%. The company has paid the same 18 cent per share quarterly dividend since late 2006.

Its dividend payout ratio (dividend/earnings) is only 23%, so a dividend hike is certainly possible.

Reasonable Valuation

Shares of CBT have rallied more than 70% since October 3 but are still about 18% below 2011 highs. And valuation looks reasonable with shares trading at just 13x 12-month forward earnings, a discount to its 10-year median of 15x.

The Bottom Line

With rising estimates, solid growth prospects, a 1.8% dividend and reasonable valuation, Cabot offers plenty to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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