Zacks Investment Research upgraded Neenah Paper, Inc. (NP) to a Zacks Rank #1 (Strong Buy) on Mar 28, 2014. Going by the Zacks model, companies holding a Zacks Rank #1 have strong chances of performing better than the broader market.
Why the Upgrade?
Market sentiments are favoring Neenah Paper—as evidenced by the 11.8% increase in share price—since the company released its fourth-quarter 2013 results on Feb 18. Earnings per share from continuing operations in the quarter were 78 cents, surpassing the Zacks Consensus Estimate of 56 cents by 39.3%. Also, the net result was above the year-over-year earnings per share of 60 cents.
Revenues in the quarter increased 6% year over year to $204.9 million. The improvement was driven by 4.1% and 9.8% revenue growth recorded in the Technical Products and Fine Paper segments respectively. However, revenues from the Other segment declined 7.5% year over year. Gross margin increased 100 basis points year over year to 20.6%.
Neenah Paper also remains focused on rewarding its shareholders well through dividend payments. The company has increased its quarterly dividend rate for first-quarter 2014 by 20% to 24 cents from the earlier 20 cents.
Fourth-quarter 2013 results as well as the increased dividend rate triggered upward revisions in earnings estimates for Neenah Paper. In the last 60 days, the Zacks Consensus Estimate has increased 6.5% to $3.28 for 2014 and by 9.4% to $3.94 for 2015. The estimate also reflects year-over-year growth of 12.0% and 20.1% for 2014 and 2015 respectively. Earnings growth for the next 5 years is predicted to be 10.0%.
Solid earnings growth rates as well as a positive average earnings surprise of 10.2% have made us optimistic of a better performance ahead by Neenah Paper.
Other Stocks to Consider
Neenah Paper is an $822 million company operating in the paper and related products industry. Other stocks worth considering in the industry include Resolute Forest Products Inc. (RFP), Stora Enso Oyj (SEOAY) and UPM-Kymmene Oyj (UPMKY), all of which carry the same rank as Neenah Paper.