) is poised for growth due to strong demand from energy and
construction markets, as well as attractive synergies from an
acquisition. The specialty chemicals maker, best known for its
Valvoline automotive lubricants, has posted seven positive earnings
surprises in a row with shares hitting new record highs lately.
With low valuation metrics, including a price-to-sales (P/S) ratio
of just 0.8, this Zacks #1 Rank (Strong Buy) stock is a compelling
Ashland is on a Roll
On July 26, Ashland reported adjusted earnings of $2.04 per share
for the third-quarter fiscal 2012 (ended June 30), which trumped
the Zacks Consensus Estimate of $1.80. It was the eleventh positive
earnings surprise in the past twelve quarters.
Profit from continuing operations more than doubled year over year
to $160 million, buoyed by a strong performance from the core
Specialty Ingredients segment and the acquisition of International
Specialty Products Inc ("ISP").
Revenues shot up 23.5% year over year to $2.1 billion. The company
saw significant demand in the energy market during the quarter,
leading to accelerated growth of its specialty additives.
While the Specialty Ingredients division delivered double-digit
growth in the quarter, sales fell across the Performance Materials,
Consumer Markets and Water Technologies segments. Operating income
more than doubled over the prior-year quarter to $263 million.
The roughly $3.2 billion acquisition of ISP has reinforced
Ashland's position in high-growth markets such as energy, personal
care and pharmaceutical. The integration of ISP is currently
underway and the company expects to achieve its cost synergy target
in fiscal 2013.
Rising Earnings Estimates
The Zacks Consensus Estimate for fiscal 2012 has increased 8.2%
over the last 60 days to $6.50 per share, reflecting a projected
annualized growth of roughly 31.9%. For fiscal 2013, the Zacks
Consensus Estimate rose by 3.5% over the same timeframe to $7.59
per share, representing an estimated year-over-year growth of
Plenty of Value
Ashland has performed reasonably well so far this year, generating
a healthy year-to-date return of roughly 32%. Moreover, shares hit
a new 52-week high of $77.62 on September 13, 2012.
Ashland has lot to attract investors seeking value. In addition to
having a low P/S, the stock has an attractive forward P/E ratio of
11.8. It also sports a low price-to-book (P/B) ratio of 1.4. (A P/S
ratio lower than 1.0, a P/E below 15.0 and a P/B ratio under 3.0
generally indicate value).
Founded in 1918, Ashland Inc. makes nickel and cobalt-based alloys
in sheet, coil and plate forms. It operates through four segments,
namely Specialty Ingredients, Water Technologies, Performance
Materials and Consumer Markets. The company's Consumer Markets
segment markets Valvoline, the world's first lubricating oil. It
also operates the Valvoline Instant Oil Change, the nation's
second-largest franchised quick-lube chain with roughly 870
locations. Ashland, which has a market cap of roughly $6 billion,
offers specialty chemicals in more than 100 countries.
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