Fears of a global economic slowdown have taken their toll on
chemical stocks like
Koppers Holdings Inc.
(
KOP
). The stock recently traded more than 20% below its 52-week high
seen in early May.
But so far Koppers is showing no signs of slowing down.
The company recently delivered a big earnings beat driven by
double-digit sales growth and expanding profit margins. This
prompted analysts to revise their estimates significantly higher
for both 2012 and 2013, sending the stock to a Zacks #1 Rank
(Strong Buy) stock.
Shares currently trade at just 8x forward earnings and sport a PEG
ratio of 0.4. If global growth concerns turn out to be overblown,
Koppers could offer very attractive upside potential.
Company Description
Koppers Holdings produces carbon compounds and treated wood
products for use in the aluminum, chemical, railroad, utility, and
steel industries. Sales for the first quarter of 2012 were divided
as follows:
Carbon Materials & Chemicals: 66%
Railroad & Utility Products: 34%
The company is headquartered in Pittsburgh and has a market cap of
$660 million.
First Quarter Results
Koppers reported strong first quarter results on May 4. Earnings
per share came in at 74 cents, crushing the Zacks Consensus
Estimate by 17 cents. It was a whopping 68% increase over the same
quarter last year.
Net sales rose 12% to $380.9 million, in-line with the consensus.
Sales grew 14% in the Carbon Materials & Chemicals segment
while the Railroad & Utility Products segment rose 7%.
Gross profit expanded from 13.3% to 14.2% of net sales as the
company was generally able to pass along rising input costs through
higher prices. Meanwhile, operating profit increased 37% as the
company leveraged its selling, general and administrative expenses.
Estimates Soaring
Analysts revised their estimates significantly higher for both 2012
and 2013 higher following strong Q1 results. This sent the stock to
a Zacks #1 Rank (Strong Buy).
As you can see in its Price & Consensus chart, consensus
estimates have risen steadily over the last several months:
Based on current consensus estimates, analyst expect strong growth
from Koppers over the next couple of years. The 2012 Zacks
Consensus Estimate is $3.72, representing 33% growth over 2011 EPS.
The 2013 consensus is $4.16, corresponding with 12% growth.
Priced for a Recession?
Although earnings estimates continue to march higher, the stock
price hasn't followed suit because of global economic growth
concerns. With shares trading at just 8x 12-month forward earnings,
it looks like a fairly big slowdown is already baked into the stock
price.
And its PEG ratio is just 0.4 based on a consensus 5-year EPS
growth rate of 21%.
The Bottom Line
With strong earnings momentum and solid growth prospects, Koppers
Holdings looks like a bargain at just 8x forward earnings... as
long as another recession isn't right around the corner.
Todd Bunton is the Growth & Income Stock Strategist for
Zacks Investment
Research
and Editor of the
Income Plus Investor service
.
KOPPERS HOLDNGS (KOP): Free Stock Analysis
Report
KOPPERS HOLDNGS (KOP): Free Stock Analysis
Report
To read this article on Zacks.com click here.