We believe that Univar Inc. (UNVR - Free Report) is a solid choice for investors seeking exposure in the chemical space. Strategic initiatives for enhancing its profitability, preferences among customers for its services and meaningful buyouts will work in its favor.
The stock, with roughly $3.9 billion market capitalization, has been upgraded to a Zacks Rank #1 (Strong Buy) on Mar 23. Its investment appeal is further accentuated by a VGM Score of A.
Univar delivered better-than-expected earnings in three of the last four quarters, recording an average positive earnings surprise of 20.83%.
Why the Upgrade?
We are providing a snapshot of how Univar fared in the fourth quarter of 2017. Its earnings of 34 cents surpassed the Zacks Consensus Estimate by 30.77%. Revenues were up 8.1% year over year on the back of the rise in sales in Canada, EMEA and the Rest of World business segment, partially offset by the fall in sales from USA segment.
In 2018, Univar anticipates its adjusted earnings to be $1.60-$1.80, above $1.39 recorded in 2017 and expects revenues to grow in mid-single digit. Also, it believes that the initiatives to improve operating cost productivity will enable it to fund investments for technological development and the enhancement of sales force activities. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) will grow at a low double-digit.
Also, Univar will continue working on its key initiatives — Operational Excellence, Commercial Greatness and One Univar — targeted at enhancing its profitability or return on investment. By 2019, it aims at growing revenues around 2-4% (CAGR) and adjusted EBITDA around 10-12%. Earnings per share are predicted to be within $2.00-$2.30 per share range. Reinvestment for core business growth, meaningful buyouts and lowering debt burden are the key features of the company’s capital allocation policy.
A number of distribution agreements/contracts have been signed since the beginning of 2018. In this regard, contracts with Food Ingredients & Bio Industrial business unit of Cargill, The Dow Chemical Company for distribution rights (in North America) of UCON fluids and lubricants, The Chemours Company (CC - Free Report) and many more, are worth mentioning. Also, in January, the company’s business units completed the acquisition of Kemetyl Industrial Chemicals.
In the last 60 days, earnings estimates for Univar were revised upward by four brokerage firms for 2018 and by two firms for 2019. The Zacks Consensus Estimate currently stands at $1.72 for 2018 and $2.01 for 2019, reflecting an increase of 14.7% and 2% from the respective 60-day-ago tallies.
Univar Inc. Price and Consensus