A. Schulman, Inc.
(
SHLM
) recently delivered better than expected results for the first
quarter of its fiscal 2012 as earnings per share jumped 53%
year-over-year.
Analysts revised their estimates higher for the rest of 2012,
sending the stock to a Zacks #2 Rank (Buy). Based on current
consensus estimates, analysts expect double-digit EPS growth over
the next few years.
On top of this, the company pays a dividend that yields a solid
3.1%. Valuation looks attractive too, with shares trading at less
than 10x forward earnings.
Be Greedy When Others Are Fearful
A. Schulman manufactures high-performance plastic compounds and
resins used in a variety of consumer, industrial, automotive and
packaging applications. Over two-thirds of its revenue comes from
the Europe, Middle East and Africa (EMEA) region.
As an economically-sensitive company, A. Schulman sold off heavily
in the second half of 2011 as investors feared a significant global
economic slowdown in 2012. The stock has come back a bit since
then, but it still well below its 52-week highs despite strong
business performance.
But if these fears turn out to be overblown, the stock could see a
lot of upside.
First Quarter Results
A. Schulman reported very strong results for the first quarter of
its fiscal 2012 on January 5. Earnings per share came in at 52
cents, crushing the Zacks Consensus Estimate by 10 cents. It was a
whopping 53% increase over the same quarter in 2010.
Net sales rose 4% to $517.3 million, driven by a higher average
selling price per pound due to improved mix, partially offset by
lower volume. Sales in the first quarter were divided as follows:
Europe, Middle East and Africa (EMEA): 68%
The Americas: 25%
Asia Pacific (APAC): 7%
Sales were up across each region, but growth was strongest in The
Americas, which saw 11% top-line growth. APAC saw 8% sales growth,
while the EMEA region rose 2%.
Gross profit per pound rose 10% year-over-year to 15.2 cents. The
company did a great job controlling costs in the quarter, as
selling, general and administrative expenses fell from 10.5% to
9.1% of sales.
Overall, these factors led to a stellar 30% increase in operating
income.
Outlook
Management stated in its first quarter press release that "the
fiscal 2012 second quarter is expected to be challenged by
declining demand in Europe." But they also expect volume declines
to be offset from continued restructuring efforts and SG&A cost
controls.
Moreover, the majority of its European business is in the northern
section, which is much stronger and more resilient than the
southern portion.
Analysts actually raised their estimates for the remainder of 2012,
sending the stock to a Zacks #2 Rank (Buy). The 2012 consensus
estimate is now $2.11, representing 13% growth over 2011 EPS. The
2013 consensus estimate is currently $2.47, corresponding with 17%
EPS growth.
Dividend
On top of this strong growth, A. Schulman pays a dividend that
yields a solid 3.1%. The company raised its dividend by 10% in
October 2011.
Over the last 10 years, it has increased its dividend at a compound
annual rate of 2%.
Valuation
If fears over a global economic slowdown in 2012 and its effects on
A. Schulman are overblown, which analysts seem to believe, then
valuation looks very attractive. Shares trade at just 9.6x 12-month
forward earnings, a significant discount to its 10-year median of
14.9x.
Its price to book ratio is just 1.2, below the industry median of
1.4.
The Bottom Line
With rising estimates, strong growth projections, a solid 3.1%
dividend yield, and attractive valuation, A. Schulman offers a lot
of upside potential.
Todd Bunton is the Growth & Income Stock Strategist for
Zacks Investment
Research
and Co-Editor of the
Reitmeister Value Investor
.
SCHULMAN(
A
) INC (
SHLM
): Free Stock Analysis Report
To read this article on Zacks.com click here.