Koninklijke DSM N.V.’s (RDSMY - Free Report) efforts to improve its product portfolio, reduce costs, improve operational efficiency and strategic associations make it a solid bet for investors now.
It currently sports a Zacks Rank #1 (Strong Buy).
In the last six months, the company’s American Depository Receipts have yielded 17.5% return, outperforming 6.9% gain recorded by the industry it belongs to.
Why the Upgrade?
Koninklijke DSM’s financial performance in second-quarter 2017 was impressive, with revenues increasing 8% year over year on the back of sales growth in Nutrition, Materials and Innovation Center segments. Volume growth and favorable price mix contributed 6% to sales growth while the rest 2% came from positive impact of foreign currency translation. Adjusted net profit grew 30% year over year.
In the quarters ahead, Koninklijke DSM anticipates benefiting from innovation of new products and strong customer relationships. Also, improving operational efficiency and reducing costs remain priorities for it. For 2017, the company increased its earnings before interest, tax, depreciation and amortization (EBITDA) growth rate expectation to double digits from the earlier projection of high single-digit. Return on capital employed will grow over 100 basis points (bps) versus double digits bps expected earlier.
Additionally, benefits from strategic associations will improve profitability in the quarters ahead. Notably, the company’s partnership with Nanjing Cosmos Chemical Co. (entered in July 2017) will strengthen its UV filters portfolio. The two companies will produce UV filters PARSOL Max and PARSOL Shield. Also, the company is consistently engaged in new programs like Clean Cow project, aiming to lower methane emissions in cattle, the Green Ocean partnership, Niaga Technology for fully-recyclable carpets, Dyneema Carbon Composites and many more. These initiatives are likely to contribute to its EBITDA growth in the years ahead.
Investors seem to be optimistic about Koninklijke DSM’s future prospects, as evident from the positive revisions in earnings estimates for the stock. Over the last 60 days, the Zacks Consensus Estimate for the company increased 11.4% to $1.17 for 2017 and 8% to $1.22 for 2018.