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Value

Fears of a global economic slowdown have taken their toll on chemical stocks like Koppers Holdings Inc. (KOP - Snapshot Report). The stock recently traded more than 20% below its 52-week high seen in early May.

But so far Koppers is showing no signs of slowing down.

The company recently delivered a big earnings beat driven by double-digit sales growth and expanding profit margins. This prompted analysts to revise their estimates significantly higher for both 2012 and 2013, sending the stock to a Zacks #1 Rank (Strong Buy) stock.

Shares currently trade at just 8x forward earnings and sport a PEG ratio of 0.4. If global growth concerns turn out to be overblown, Koppers could offer very attractive upside potential.

Company Description

Koppers Holdings produces carbon compounds and treated wood products for use in the aluminum, chemical, railroad, utility, and steel industries. Sales for the first quarter of 2012 were divided as follows:

Carbon Materials & Chemicals: 66%
Railroad & Utility Products: 34%

The company is headquartered in Pittsburgh and has a market cap of $660 million.

First Quarter Results

Koppers reported strong first quarter results on May 4. Earnings per share came in at 74 cents, crushing the Zacks Consensus Estimate by 17 cents. It was a whopping 68% increase over the same quarter last year.

Net sales rose 12% to $380.9 million, in-line with the consensus. Sales grew 14% in the Carbon Materials & Chemicals segment while the Railroad & Utility Products segment rose 7%.

Gross profit expanded from 13.3% to 14.2% of net sales as the company was generally able to pass along rising input costs through higher prices. Meanwhile, operating profit increased 37% as the company leveraged its selling, general and administrative expenses.

Estimates Soaring

Analysts revised their estimates significantly higher for both 2012 and 2013 higher following strong Q1 results. This sent the stock to a Zacks #1 Rank (Strong Buy).

As you can see in its Price & Consensus chart, consensus estimates have risen steadily over the last several months:

KOP: Koppers Holdings Inc.

Based on current consensus estimates, analyst expect strong growth from Koppers over the next couple of years. The 2012 Zacks Consensus Estimate is $3.72, representing 33% growth over 2011 EPS. The 2013 consensus is $4.16, corresponding with 12% growth.

Priced for a Recession?

Although earnings estimates continue to march higher, the stock price hasn't followed suit because of global economic growth concerns. With shares trading at just 8x 12-month forward earnings, it looks like a fairly big slowdown is already baked into the stock price.

And its PEG ratio is just 0.4 based on a consensus 5-year EPS growth rate of 21%.

The Bottom Line

With strong earnings momentum and solid growth prospects, Koppers Holdings looks like a bargain at just 8x forward earnings... as long as another recession isn't right around the corner.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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