On Aug 16, we reaffirmed our Neutral recommendation on paints
and coatings maker
). While Valspar should benefit from acquisitions, effective cost
management and strength in the U.S., we maintain our cautious
stance given the uncertain demand environment.
Both revenues and earnings for third-quarter fiscal 2013 (ended
Jul 26, 2013), reported on Aug 13, missed Zacks Consensus
Estimates. Valspar recorded higher sales in its paint business in
the quarter, driven by volume gains in the U.S and strength in
China. Volumes increased by double digits in the U.S., driven by
growth in consumer paints, packaging, coil and wood product
lines. Valspar, however, narrowed its earnings forecast for
fiscal 2013 citing macroeconomic headwinds.
Valspar, a Zacks Rank #3 (Hold) stock, has a strong pipeline of
new products and significant opportunities for share gains in
both its Paint and Coatings segments. It continues to see
strength in its coatings business as evidenced by new business
wins. Valspar's fastest growing markets are the emerging
Valspar should also benefit from its restructuring actions in
fiscal 2013. The company is managing its cost well and
maintaining a cost structure that is appropriate for the current
external environment. Valspar also remains committed to boost
shareholder return leveraging healthy cash flows.
Winning new businesses also remain a company-wide focus that will
position Valspar well for the future and help offset lower demand
in some of its core markets. In this context, the recent
acquisition of Italy-based industrial coatings maker Inver
Holding S.r.l. represents a significant move. The buyout
reinforces Valspar's position in the $6 billion European
industrial coatings market and offers operational synergies.
However, we remain concerned about weakness in general industrial
markets. Valspar continues to see weak coatings demand for
general industrial products, mainly for off-road equipment.
Moreover, its paint business in Australia continues to be
impacted by a weak non-residential construction market. The
overall demand environment is expected to be uneven in fiscal
We also account for volatility in raw material costs. Valspar has
experienced disruptions in supplies of certain raw materials at
various times, impacting its ability to manufacture products.
Other Stocks to Consider
Other companies in the specialty chemical space with favorabe
Zacks Rank are
KMG Chemicals Inc.
Sensient Technologies Corporation
). While Ferro retains a Zacks Rank #1 (Strong Buy), KMG
Chemicals and Sensient Technologies retain a Zacks Rank #2
FERRO CORP (FOE): Free Stock Analysis Report
KMG CHEMICALS (KMG): Free Stock Analysis
SENSIENT TECH (SXT): Free Stock Analysis
VALSPAR CORP (VAL): Free Stock Analysis
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