Expect Further Upside for Lubrizol

Though the share price of Lubrizol (LZ - Snapshot Report) has appreciated over 25% since Zacks senior chemicals industry analyst Paul Raman, CFA upgraded the company to a Buy mid-last year, the analyst still feels there is upside remaining for the specialty chemical firm: “Lubrizol is benefiting from organic growth and improved pricing witnessed in both of its businesses. The company is doing a good job of managing its expenses, which is leading to improved operating margins. Raw material prices are beginning to fall. Free cash flow is $200 million annually. As a result, we rate the stock a Buy. “The Specialty Chemicals business broadens the company s presence in the high-growth businesses of global coatings and personal care markets. The company s organic growth is expected to increase revenue by $760 million through 2010. Out of which, the Lube Additives business is expected to add $350 million in sales by higher volumes in the next 3 years, and achieve 12% operating margins. “Currently, shares of Lubrizol Corporation are trading at 16.2x our 2007 EPS [earnings per share] estimate of $3.59. It is trading at a discount to its peers. Because of lube additive demand and higher prices, we take a positive view towards Lubrizol's earnings prospects. As a result, we rate the shares a Buy with a six-month target price of $61.00. This is 17.0x our 2007 EPS estimate.” Read the analyst report on LZ