Sometimes the best opportunities emerge in industries that investors have all but forgotten. While everyone is so engrossed in the AI trade and all the suppliers around it, there are plenty of names that have fallen by the wayside. Among them is today’s Bull of the Day, a stock with solid earnings growth that’s flying under the radar.
I’m talking about Zacks Rank #1 (Strong Buy) Kronos Worldwide (KRO). Kronos Worldwide is one of the world's leading producers of titanium dioxide, the white pigment found in everything from paint and plastics to paper and coatings. After enduring several difficult years of weak industrial demand and pricing pressure, the cycle appears to be turning, and Kronos is well positioned to benefit.
The biggest catalyst is improving demand across key end markets. As manufacturing activity stabilizes globally and housing-related demand gradually recovers, customers are beginning to rebuild inventories after an extended period of destocking. Titanium dioxide pricing has also shown signs of firming, giving Kronos the opportunity to expand margins after several quarters of compressed profitability. For a cyclical business like KRO, even modest pricing improvements can have an outsized impact on earnings.
Kronos Worldwide Inc Price and Consensus
Kronos Worldwide Inc price-consensus-chart | Kronos Worldwide Inc Quote
Lower raw material and energy costs provide another tailwind. Kronos has spent the past few years navigating elevated input costs that squeezed margins despite relatively stable sales volumes. As those inflationary pressures ease, more revenue should flow directly to the bottom line. The company doesn't need explosive sales growth to generate meaningful earnings leverage.
The reason for the favorable Zacks Rank is earnings estimates from analysts are coming in to the upside. Over the last sixty days, analysts have upped the ante for the current year and next year. That’s put our Zacks Consensus Estimate for this year to a 33-cent loss while next year’s number swings to a profit of 17 cents. That’s on revenue growth forecasts of 8.8% this year to $2.02 billion. That puts Price-to-Sales down at just 0.40x, a discount to the industry average closer to 0.80x.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
