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Element Solutions (ESI) Up 9.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Element Solutions (ESI). Shares have added about 9.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Element Solutions due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Element Solutions’ Q1 Earnings Top Estimate, Sales Up Y/Y

Element Solutions recorded earnings (as reported) from continuing operations of 33 cents per share in first-quarter 2021, up from 3 cents in the year-ago quarter.

Adjusted earnings per share (EPS) of 37 cents for the quarter topped the Zacks Consensus Estimate of 32 cents.

The company generated net sales of $550.1 million, up around 22% year over year. Organic net sales, barring the impact of currency changes, specific pass-through metal prices and acquisitions, rose 11% year over year. The company benefited from strong demand in the broader electronics supply chain and accelerated demand across the industrial economy.

Segment Highlights

Net sales in the Electronics segment rose 31% year over year to $354 million in the reported quarter. Organic net sales increased 18% from the year-ago quarter’s reported figure. Adjusted EBITDA was $93 million, up 39% year over year.

Net sales in the Industrial & Specialty unit went up 7% year over year to $197 million. Organic net sales moved up 1% year over year. Adjusted EBITDA in the segment was $45 million, up 4% year over year.

Financial Position

Element Solutions ended the quarter with cash and cash equivalents of $317.5 million, down around 36% year over year. Long-term debt was $1,507 million at the end of the quarter, down 0.3% year over year.

The company generated cash flows from operating activities of $33 million in the reported quarter. Free cash flows for the quarter were $24 million.

Outlook

The company increased in adjusted EPS guidance to at least $1.30, up from the prior view of $1.10-1.15. It also now expects adjusted EBITDA in the band of $500-$510 million. Moreover, it anticipates generating free cash flow of $285 million for 2021, up from $275 million expected earlier.

For the second quarter, the company sees adjusted EBITDA to be in the range of $125-$130 million. It expects higher raw material prices and other cost inflation to slightly impact profitability.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 25.93% due to these changes.

VGM Scores

At this time, Element Solutions has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Element Solutions has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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