Ingevity Corporation NGVT is an attractive play for investors seeking exposure in the specialty chemical space. The company has seen significant upside to its stock since its shares started trading on the NYSE in May 2016, following its separation from the WestRock Company. Its shares have also popped 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.
Ingevity has an impressive earnings surprise history, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of 19.8%.
The stock is expected to continue its upward momentum based on strong oilfield business recovery, growth in activated carbon demand and significant synergy capture from Georgia-Pacific’s asset buyout.
Ingevity currently has a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let's delve deeper into the factors that make Ingevity stock an attractive investment option at the moment.
Ingevity has outperformed the industry it belongs to over the past year. The company’s shares have shot up 24% compared with roughly 3.5% decline recorded by the industry. The company has also outpaced the S&P 500’s gain of 4.5% for the same period.
Ingevity, in October, increased the mid-point and narrowed the range for its 2018 guidance for adjusted EBITDA to $306-$314 million from $302-$314 million. The company reaffirmed its sales guidance of between $1.10 billion and $1.13 billion for the year.
Sales growth in the oilfield industry on the back of higher U.S. drilling and production is driving revenues in the company’s Performance Chemicals division. Moreover, sustained adoption of the company’s solutions geared to meet the U.S. EPA Tier 3 and California LEV III emission regulations is contributing to the growth in the Performance Materials unit. Ingevity is poised to benefit from an expected rise in activated carbon demand on the back of the anticipated early adoption of China’s new gasoline emissions standards (the China 6 national standard) by some municipalities and regions.
The company is also well placed to benefit from its buyout of Georgia-Pacific’s pine chemicals business. The acquisition contributed to strong growth in sales of the Performance Chemicals division in the third quarter. The acquisition is expected to create net synergies of roughly $11 million through manufacturing optimization, lower logistics costs and leveraged procurement costs.
The Performance Chemicals segment should also benefit from higher adoption of tall oil fatty acid (TOFA)-based products. Healthy TOFA pricing is also providing support to the margins of the division.
Healthy Growth Prospects
Growth prospects for Ingevity appear encouraging. The Zacks Consensus Estimate for earnings for 2018 for Ingevity is currently pegged at $3.85 per share, reflecting an expected year-over-year growth of 49.2%. The same for 2019 stands at $4.77, indicating a year-over-year growth of 24%. Moreover, earnings are expected to register a 73.3% growth in the fourth quarter. The stock also has a long-term expected earnings per share growth rate of roughly 12%, higher than the industry average of 10.6%.
Revenues for Ingevity for the fourth quarter is projected to rise roughly 15.4% year over year as the Zacks Consensus Estimate for the quarter is currently pegged at $264.9 million. Revenues for 2018 are expected to increase 14.9% year over year as the Zacks Consensus Estimate for the year is $1.12 billion. Ingevity’s revenues are also expected to register a 10.1% growth in 2019.
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 2018 has increased by around 3.5%. The Zacks Consensus Estimate for 2019 has also moved up 2.1% over the same timeframe.
Ingevity is also committed to deliver value to shareholders leveraging healthy cash flows. The company continues to examine options for utilization of cash. Last month, its board authorized an additional share repurchase worth up to $350 million. The share repurchase is in addition to the $100 million share repurchase program approved in February 2017.
Ingevity generated $110 million of free cash flows at the end of the third quarter. The company has raised its free cash flow guidance for 2018 to $120-$130 million (from $105-$115 million) factoring in strong operating performance of its segments.
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 The Mosaic Company MOS, CF Industries Holdings, Inc. CF and Ashland Global Holdings Inc. ASH, each sporting a Zacks Rank #1.
Mosaic has expected long-term earnings growth rate of 7%. Its shares have surged 52% in the past year.
CF Industries has expected long-term earnings growth rate of 6%. Its shares have gained 14% in a year.
Ashland has expected long-term earnings growth rate of 10%. Its shares have gained 12% in the past year.
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