(ASH - Snapshot Report
) is poised for growth as demand increases from the core markets that it serves. The specialty chemicals maker, best known for its Valvoline automotive lubricants, has racked up eleven positive earnings surprises in the last twelve quarters and hit its new 52-week high on August 10, 2012.
This Zacks #2 Rank (Buy) deserves to be on aggressive growth investors watch lists due to its flurry of earnings beats, strong demand from energy and construction markets, strength across multiple areas, an above-average long-term earnings growth projection of 16.6% and attractive synergies from an acquisition.
Seven Straight Beats
On July 26, Ashland reported a positive earnings surprise of 13.3% for its third-quarter fiscal 2012 (ended June 30). Adjusted earnings of $2.04 per share outperformed the Zacks Consensus Estimate of $1.80, marking the seventh straight positive surprise.
Profit from continuing operations more than doubled year over year to $160 million, boosted by a strong performance from the core Specialty Ingredients segment and the acquisition of International Specialty Products Inc (ISP). The roughly $3.2 billion acquisition has boosted Ashlands position in high-growth markets such as energy, personal care and pharmaceutical.
Revenues jumped 23.5% year over year to $2.1 billion. The company saw significant demand in the energy market in the quarter, leading to accelerated growth of its specialty additives.
While the Specialty Ingredients division delivered double-digit growth in the quarter, sales fell across the Performance Materials, Consumer Markets and Water Technologies segments. Operating income more than doubled over the prior-year quarter to $263 million.
Earnings Estimates Cruising
All nine estimates for fiscal 2012 have been revised higher in the last 30 days, raising the Zacks Consensus Estimate by 49 cents (or 8.2%) to $6.50 per share. This reflects a projected annualized growth of roughly 31.9%.
Six estimates out of eight have moved higher for fiscal 2013 in the last 30 days, sending the Zacks Consensus Estimate up by 18 cents (or 2.5%) to $7.51 per share. This represents an estimated year over year growth of 15.5%. However, there has been a solitary downward revision as well over the same period.
Ashland is currently trading at a forward P/E of 11.21x, on par with the peer group average. The price-to-book of 1.37x is much lower than the peer group average of 3.08x. Moreover, the company has a PEG ratio of 0.68, a 32% discount to the benchmark of 1 for a fairly priced stock.
Chart Shows Potential
The price and consensus chart demonstrates that the earnings estimate lines for fiscal 2012 and 2013 are hovering above the stock price, indicating that Ashland is undervalued. The strong earnings growth potential has been captured by the gap between the estimate lines for fiscal 2011, 2012 and 2013.
Founded in 1918, Ashland Inc. makes nickel and cobalt-based alloys in sheet, coil and plate forms. It operates through four segments, namely Specialty Ingredients, Water Technologies, Performance Materials and Consumer Markets. The companys Consumer Markets segment markets Valvoline, the worlds first lubricating oil. It also operates the Valvoline Instant Oil Change, the nations second-largest franchised quick-lube chain with roughly 870 locations. Ashland, which has a market cap of roughly $5.8 billion, offers specialty chemicals in more than 100 countries.