We have reaffirmed our Neutral recommendation on paints and
) following its mixed second-quarter fiscal 2013 results. While
we are encouraged by the recovery in its paint business, an
uncertain demand environment keeps us on the sidelines.
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Adjusted earnings for the second quarter, reported on May 14,
beat the Zacks Consensus Estimate while sales miss. Valspar
witnessed a recovery in its paint business in the quarter, driven
by a rebound in the domestic housing market. The company backed
its earnings forecast for fiscal 2013.
Valspar has a strong pipeline of new products and significant
opportunities for share gains in both its Paints and Coatings
segments. The company is managing its cost well and maintaining a
cost structure that is appropriate for the current external
environment. Valspar should also benefit from its restructuring
actions in fiscal 2013.
Winning new businesses also remains a company-wide focus that
will position Valspar well for the future and help it offset
lower demand in core markets. Its fastest growing markets are the
emerging economies. The company expects to gain from new
businesses in consumer paints, packaging, coil and wood coatings
in second-half fiscal 2013.
Valspar also remains committed to boost shareholder return
leveraging healthy cash flows. In addition, it is making good
progress with the integration of the acquired assets from Ace
However, Valspar continues to witness irregular demand trends
across its end markets and weakness for some of its products in
overseas markets. It continues to see weak coatings demand for
general industrial products. The overall demand environment is
expected to be uneven in fiscal 2013.
We also remain cautious about cost pressures associated with raw
material inflation. Raw material costs have been volatile and
Valspar has experienced disruptions in supplies of certain raw
materials at various times, impacting its ability to manufacture
Valspar currently carries a short-term (1 to 3 months) Zacks Rank
Other Stocks to Consider
Other companies in the specialty chemicals industry with
favorable Zacks Rank are
American Pacific Corporation
). While both American Pacific and American Vanguard hold a Zacks
Rank #1 (Strong Buy), Ferro retains a Zacks Rank #2 (Buy).