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Ingevity (NGVT) Up 52% in a Year: What's Driving the Rally?

Zacks Equity Research

Shares of Ingevity Corporation NGVT have soared around 52% over a year. The company has also trounced its industry’s rise of roughly 7.5% over the same time frame.

Ingevity has a market cap of roughly $4.8 billion and average volume of shares traded in the last three months was around 389.9K. The company has an expected long-term earnings per share growth rate of 12%, higher than the industry average of 10.5%.


 

Let’s take a look into the factors that are driving this Zacks Rank #1 (Strong Buy) stock.

What's Working in NGVT’s Favor?

Sustained earnings outperformance, upbeat outlook, 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 is gaining from on strength in oilfield business, growth in activated carbon demand, focus on high margin application areas and significant synergy capture from Georgia-Pacific’s asset buyout.

Sales growth in the oilfield industry on the back of strong U.S. drilling is driving revenues in the company’s Performance Chemicals division. Higher adoption of tall oil fatty acid (TOFA)-based products is also benefiting the segment. Higher TOFA pricing is driving sales in industrial specialties.

Moreover, sustained adoption of the company’s solutions geared to meet the U.S. EPA Tier 3 and California LEV III emission regulations is also contributing to the growth in the Performance Materials segment.

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 expected to gain strong foothold as China gradually shifts to new standards.

Ingevity is also benefiting from its buyout of Georgia-Pacific’s pine chemicals business. The acquisition is contributing to strong growth in sales of the Performance Chemicals division. The buyout is driving sales in oilfield technologies and industrial specialty. Synergy capture from the acquisition has also exceeded the company’s initial expectations.

Moreover, 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.

Ingevity, in its fourth-quarter call, provided an upbeat outlook for 2019. It 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 company also has an impressive earnings surprise history, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters. In this timeframe, the company delivered a positive average earnings surprise of 22.8%

The trend in earnings estimate revisions also indicates a strong earnings outlook for Ingevity. Over the past two months, the Zacks Consensus Estimate for 2019 for Ingevity has increased by around 2.7%. The same for 2020 also rose 1.5%.

The Zacks Consensus Estimate for earnings for 2019 is currently pegged at $4.87 per share, reflecting an expected year-over-year growth of 17.9%. Earnings are also expected to register a 22.2% growth in 2020.

Ingevity Corporation Price and Consensus

 

Ingevity Corporation Price and Consensus | Ingevity Corporation Quote

Stocks Worth a Look

Other stocks worth considering in the basic materials space include Innospec Inc. IOSP, W. R. Grace & Co. GRA and Israel Chemicals Ltd. ICL.

Innospec has an expected earnings growth rate of 3.5% for the current year and carries a Zacks Rank #1. Its shares have rallied roughly 22% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

W. R. Grace has an expected earnings growth rate of 10.4% for the current year and carries a Zacks Rank #2 (Buy). Its shares have gained around 18% in the past year.

Israel Chemicals has an expected earnings growth rate of 10.8% for the current year and carries a Zacks Rank #2. The company’s shares are up around 21% over the past year.  

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