Shares of Stepan (SCL) have been strong performers lately, with the stock up 17.8% over the past month. The stock hit a new 52-week high of $110.95 in the previous session. Stepan has gained 8.1% since the start of the year compared to the 2.6% move for the Zacks Basic Materials sector and the -8.4% return for the Zacks Chemical - Diversified industry.
What's Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on July 22, 2020, Stepan Co. reported EPS of $1.65 versus consensus estimate of $1.18.
For the current fiscal year, Stepan Co. is expected to post earnings of $5.2 per share on $1.82 billion in revenues. This represents a 1.56% change in EPS on a -2.2% change in revenues. For the next fiscal year, the company is expected to earn $6.16 per share on $1.96 billion in revenues. This represents a year-over-year change of 18.46% and 7.62%, respectively.
Stepan Co. may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Stepan Co. has a Value Score of A. The stock's Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 21.3X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 12.6X versus its peer group's average of 6.8X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Stepan Co. currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Stepan Co. fits the bill. Thus, it seems as though Stepan Co. shares could have a bit more room to run in the near term.
How Does Stepan Co. Stack Up to the Competition?
Shares of Stepan Co. have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including Brenntag (BNTGY), SUMITOMO CHEMCL (SOMMY), and Koppers Holdings (KOP), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for Stepan Co. Still, the fundamentals for Stepan Co. are promising, and it still has potential despite being at a 52-week high.
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Stepan Company (SCL) : Free Stock Analysis Report
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