We believe that margin pressure in Europe, unfavorable foreign currency impacts and difficulties related to business consolidation in Evansville have weakened A. Schulman, Inc.’s (SHLM - Free Report) prospects.
It currently carries a Zacks Rank #5 (Strong Sell). Investors are advised to sell off their current holdings or avoid gaining exposure in the stock.
In the last three months, the company’s shares have yielded 1.5% return, underperforming 3.3% gain recorded by the industry it belongs to.
Why the Downgrade?
In the past 60 days, earnings estimates for the stock have been revised down, reflecting negative sentiments. To be precise, the Zacks Consensus Estimate for fourth-quarter fiscal 2017 (ending August 2017) declined 35.1% to 37 cents. Likewise, estimates declined 12.9% to $1.76 for fiscal 2017 and 13.5% to $2.17 for fiscal 2018.
Also, the company has an Earnings ESP of -5.98% for fiscal 2017 and -8.50% for fiscal 2018. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
A number of factors led to this pessimistic view. Third-quarter fiscal 2017 (ended May 2017) results came in below expectations, with earnings lagging the Zacks Consensus Estimate by 3.1%. Also, the bottom line declined 20.3% year over year. For fiscal 2017, the company has lowered its adjusted earnings projection to $1.60-$1.70 per share from the earlier forecast of $2.08-$2.18. Also, adjusted earnings before interest, tax, depreciation and amortization is predicted to be $200-$204 million versus $225-$230 million expected earlier.
As revealed by the company, higher raw material costs experienced so far in the fiscal fourth quarter is compressing margin of the European businesses. Also, operations in some other operating regions have been weak. Unfavorable foreign currency movements are likely to impact earnings by 12 cents per share while difficulties related to business consolidation in Evansville will remain an issue.
Stocks to Consider
A. Schulman has a market capitalization of approximately $876 million. Some stocks worth considering in the chemical industry are Kronos Worldwide Inc. (KRO - Free Report) , Asahi Kasei Corporation (AHKSY - Free Report) and Arkema SA . While both Kronos Worldwide and Asahi Kasei Corporation sport a Zacks Rank #1 (Strong Buy), Arkema SA carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kronos Worldwide’s earnings estimates for 2017 and 2018 represent year-over-year growth of 354.8% and 25.5%, respectively. Also, the company pulled off an average positive earnings surprise of 76.05% in the last four quarters.
Arkema SA’s earnings estimates for 2017 and 2018 improved in the last 60 days.
Asahi Kasei Corporation’s earnings estimates for fiscal 2017 and fiscal 2018 were revised upward in the last 60 days.
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