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Ashland Inc.

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Ashland Inc. (ASH - Free Report) is poised for growth due to strong demand from energy and construction markets, as well as attractive synergies from an acquisition. The specialty chemicals maker, best known for its Valvoline automotive lubricants, has posted seven positive earnings surprises in a row with shares hitting new record highs lately. With low valuation metrics, including a price-to-sales (P/S) ratio of just 0.8, this Zacks #1 Rank (Strong Buy) stock is a compelling value pick.

Ashland is on a Roll

On July 26, Ashland reported adjusted earnings of $2.04 per share for the third-quarter fiscal 2012 (ended June 30), which trumped the Zacks Consensus Estimate of $1.80. It was the eleventh positive earnings surprise in the past twelve quarters.

Profit from continuing operations more than doubled year over year to $160 million, buoyed by a strong performance from the core Specialty Ingredients segment and the acquisition of International Specialty Products Inc (“ISP”).

Revenues shot up 23.5% year over year to $2.1 billion. The company saw significant demand in the energy market during 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.

The roughly $3.2 billion acquisition of ISP has reinforced Ashland’s position in high-growth markets such as energy, personal care and pharmaceutical. The integration of ISP is currently underway and the company expects to achieve its cost synergy target in fiscal 2013.

Rising Earnings Estimates

The Zacks Consensus Estimate for fiscal 2012 has increased 8.2% over the last 60 days to $6.50 per share, reflecting a projected annualized growth of roughly 31.9%. For fiscal 2013, the Zacks Consensus Estimate rose by 3.5% over the same timeframe to $7.59 per share, representing an estimated year-over-year growth of roughly 16.7%.

Plenty of Value

Ashland has performed reasonably well so far this year, generating a healthy year-to-date return of roughly 32%. Moreover, shares hit a new 52-week high of $77.62 on September 13, 2012.

Ashland has lot to attract investors seeking value. In addition to having a low P/S, the stock has an attractive forward P/E ratio of 11.8. It also sports a low price-to-book (P/B) ratio of 1.4. (A P/S ratio lower than 1.0, a P/E below 15.0 and a P/B ratio under 3.0 generally indicate value).

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 company’s Consumer Markets segment markets Valvoline, the world’s first lubricating oil. It also operates the Valvoline Instant Oil Change, the nation’s second-largest franchised quick-lube chain with roughly 870 locations. Ashland, which has a market cap of roughly $6 billion, offers specialty chemicals in more than 100 countries.

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