Innophos Holdings, Inc. (IPHS - Free Report) has been performing well of late. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
Let’s delve deeper into the factors that make this chemical maker an attractive investment option.
What’s Working in Favor of Innophos?
An Outperformer: Innophos, a Zacks Rank #1 (Strong Buy) stock, has outperformed the industry it belongs to over the past month. The company’s shares have gained 7% compared with roughly 0.9% gain recorded by the industry.
Positive Earnings Surprise History: Innophos has an impressive earnings surprise history. The company has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of 13.1%.
Attractive Valuation: Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value chemical stocks, Innophos is currently trading at trailing 12-month EV/EBITDA multiple of 8.9, cheaper compared with the industry average of 10.5.
Estimates Moving Up: Estimates for Innophos have moved north over the past three months, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for third-quarter 2017 has increased by around 4.1% to 76 cents per share. The Zacks Consensus Estimate for 2017 has also moved up 4.2% over the same timeframe to $2.50.
Growth Drivers in Place: Innophos remains actively focused on cost savings which is driving its margins, as witnessed in second-quarter 2017. The company also remains committed to improve productivity. Innophos expects earnings in the third quarter to be positively impacted (on a sequential comparison basis) by cost savings from Phase 2 operational excellence and reduced implementation fees. The company expects to realize $5 million of the identified $13 million Phase 2 operational excellence cost savings in second-half 2017. The company should also gain from favorable sales volume trends in the second half.
The recently closed acquisition of Novel Ingredients, a provider of dietary supplement ingredient solutions, also offers a compelling opportunity. The acquisition reinforces Innophos’ position as a leading provider of vital ingredient solutions by combining technological capabilities and expanding product portfolio. The buyout will also help the company to develop innovative ingredient solutions more effectively and serve customers in a better way.
The acquisition also expands Innophos' portfolio in the high-growth nutrition end markets and creates a $0.5 billion Food, Health and Nutrition (FHN) platform, which represents roughly 60% of revenues for the combined entity.
Innophos expects the acquisition to be accretive to its earnings per share in the first year following the completion of the transaction and create significant value for shareholders and customers in the long term.
Other Stocks to Consider
Other well-placed companies in the basic materials space include The Chemours Company (CC - Free Report) , Kraton Corporation (KRA - Free Report) and POSCO , all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chemours has an expected long-term earnings growth of 15.5%.
Kraton has an expected earnings growth of 7.2% for the current year.
POSCO has an expected long-term earnings growth of 5%.
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