Ingevity Corporation NGVT is an attractive option for investors seeking exposure in the specialty chemical space. The company has seen its shares pop around 39% year to date.
Sustained earnings outperformance, strong execution, cost discipline and organic and inorganic initiatives have contributed to the growth story of this producer of specialty chemicals and activated carbon materials.
The stock is expected to continue its upward momentum based on strength in oilfield business, growth in activated carbon demand, significant synergy capture from Georgia-Pacific’s asset buyout and contributions of the acquisition of the Capa caprolactone business.
Let's delve deeper into the factors that make this Zacks Rank #1 (Strong Buy) stock a compelling investment option at the moment.
Ingevity has outperformed the industry it belongs to over the past year. The company’s shares have shot up 38.1% compared with roughly 2.3% rise recorded by the industry. The company has also outpaced the S&P 500’s gain of 1.8% for the same period.
Strong Q4 and Upbeat Outlook
Ingevity delivered strong fourth-quarter results on the back of increased volumes, better price and mix, and reduced raw materials costs. The company also benefited from the Georgia-Pacific pine chemicals acquisition.
Ingevity’s adjusted earnings per share for the quarter were $1.07, topping the Zacks Consensus Estimate of 78 cents. The company’s revenues rose roughly 21% year over year to $278.6 million in the quarter, also coming ahead of the Zacks Consensus Estimate of $262.4 million.
For full-year 2018, the company’s profits jumped roughly 34% year over year to $169.1 million or $3.97 per share. Net sales for the year went up around 17% year over year to $1,133.6 million, aided by increased selling prices.
Ingevity expects sales between $1.30 billion and $1.36 billion for 2019. Adjusted EBITDA for the year has been forecast in the band of $390 million to $410 million. The company expects revenues to increase roughly 18% and earnings to rise around 25% year over year at the mid-point of its guidance factoring in its acquisition of the Capa caprolactone business.
The recently completed acquisition of the Capa caprolactone business is expected to contribute to the growth of the company’s revenues and earnings in 2019. Capa is a market leader in the manufacture and commercialization of caprolactone and high-value downstream derivatives. The company expects the acquisition to be accretive to its earnings and margins in the first year.
Positive Earnings Surprise History
Ingevity has an impressive earnings surprise history. The company has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of roughly 22.8%.
Earnings estimate revisions have the greatest impact on stock prices. Stocks with rising estimates have significantly outperformed the S&P 500 index year after year.
Annual estimates for Ingevity have moved north over the past two months, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2019 has increased by around 2.7%. The Zacks Consensus Estimate for 2020 has also moved up 1.5% over the same timeframe.
Healthy Growth Prospects
Growth prospects for Ingevity appear encouraging. The Zacks Consensus Estimate for earnings for 2019 for Ingevity is currently pegged at $4.87 per share, reflecting an expected year-over-year growth of 17.9%. The same for 2020 stands at $5.95, indicating a year-over-year growth of 22.2%. The stock also has a long-term expected earnings per share growth rate of roughly 12%, higher than the industry average of 10.8%.
Revenues for 2019 are also expected to increase 19.1% year over year as the Zacks Consensus Estimate for the year is $1.35 billion. Ingevity’s revenues are also expected to register a 10.2% growth in 2020.
Superior Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Ingevity is 53.2%, above the industry’s level of 15.7%.
Ingevity Corporation Price and Consensus
Ingevity Corporation Price and Consensus | Ingevity Corporation Quote
Other Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include Kirkland Lake Gold Ltd. KL, Israel Chemicals Ltd. ICL and W. R. Grace & Co. GRA.
Kirkland Lake Gold has an expected earnings growth rate of 47.1% for the current year and carries a Zacks Rank #1. Its shares have shot up around 130% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Israel Chemicals has an expected earnings growth rate of 10.8% for the current year and carries a Zacks Rank #2 (Buy). The company’s shares have gained around 18% over the past year.
W. R. Grace has an expected earnings growth rate of 10.4% for the current year and carries a Zacks Rank #2. Its shares have gained roughly 17% in the past year.
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