Ingevity Corporation NGVT is expected to benefit from the acquisition of the Capa caprolactone business and growth in its applications driven by regulations and technology adoption amid a weak demand environment.
Shares of this specialty chemicals and materials maker are down 39.8% year to date, compared with the 26.3% rise of its industry.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Woking in NGVT’s Favor?
Ingevity is benefiting from the acquisition of the Capa caprolactone business. Capa has a strong and market-leading business that focuses on high-growth end-use applications. The buyout enabled Ingevity with a new technology platform to drive revenue and earnings growth. The addition of the engineered polymers product line through the acquisition is driving the company’s Performance Chemicals division. The acquired business is expected to deliver strong growth in 2020.
Ingevity is also witnessing strong momentum in its Performance Materials division as reflected by an 11% increase in sales in the last reported quarter. It is benefiting from strong demand for base automotive activated carbon products and honeycomb scrubber products, as a result of automotive customers’ complete implementation of the U.S. and Canada emission standards.
The company is also gaining from higher sales in China as automakers in the country have essentially completed the implementation of the China 6 standard.
Moreover, Ingevity is seeing robust growth in pavement technologies on strength in North America. The company is also witnessing improvement in certain countries in South America. It is seeing strong adoption of Evotherm warm-mix technology.
A Few Concerns
Ingevity is exposed to weakness in industrial applications. In the last reported quarter, its Performance Chemicals unit was affected by a slowdown in industrial activities. The company witnessed a roughly 17% decline in sales related to industrial specialties applications in the quarter, hurt by weakness in industrial demand and the exit of an unprofitable distribution deal. Pressure in industrial specialties is likely to continue moving ahead.
The company also sees sustained weakness in the rosin market in 2020. Further, Ingevity expects the oilfield industry to be volatile throughout 2020, with a significant impact on drilling in North America.
Moreover, the company anticipates a year-over-year revenue decline of 25-30% for the second quarter. Also, it expects a year-over-year decline in adjusted EBITDA of 35-40% for the quarter. The outlook is partly driven by the closure of auto production in North America and Europe.
The company recently said that it is taking certain cost-reduction measures to realign its cost structure in response to lower demand for some of its products due to the coronavirus outbreak.
Ingevity stated that it will streamline manufacturing processes, and lower spending on services and consultants. Moreover, it noted that it will lower some benefits for salaried employees as well as reduce and restructure headcount through an early retirement program, and other job cuts. The company expects to record pre-tax charges in second-quarter 2020 as part of the restructuring.
Ingevity Corporation Price and Consensus
Ingevity Corporation price-consensus-chart | Ingevity Corporation Quote
Stocks to Consider
Better-ranked stocks in the basic materials space include Agnico Eagle Mines Limited AEM, Harmony Gold Mining Company Limited HMY and AngloGold Ashanti Limited AU.
Agnico Eagle has a projected earnings growth rate of 53.6% for the current year. The company’s shares have rallied roughly 25% in a year. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Harmony Gold has an expected earnings growth rate of 28.6% for the current year. The company’s shares have shot up 87% in the past year. It presently carries a Zacks Rank #2.
AngloGold has a projected earnings growth rate of 109.9% for the current year. The company’s shares have surged around 67% in a year. It currently has a Zacks Rank #2.
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