As chemical companies are treading carefully with a shift toward sustainable product portfolios and accelerating product innovation cycles, it could be an opportune time to buy quality chemical stocks, NewMarket Corporation (NEU), Fuchs SE (FUPBY), and Oil-Dri Corporation of America (ODC), trading at discounted valuations.
The red-hot chemical industry enjoys strong demand from various sectors such as automotive, agriculture, healthcare, construction, and electronics, yielding high-profit margins. The global chemicals market grew from $4.70 trillion in 2022 to $5.08 trillion in 2023 at a CAGR of 8.1%. Further, the market is expected to reach $6.85 trillion in 2027, growing at a CAGR of 7.8%.
As chemical producers face increasing customer and regulatory pressure to embrace ESG initiatives, companies are adopting sustainable practices and eco-friendly processes to mitigate the adverse effects of chemical manufacturing on the environment.
This has led to the emergence of green chemicals, with over a 5% increase in end-user demand. The global market for green chemicals is anticipated to reach $3.3 billion by 2030, registering a CAGR of 8%-10%.
Further, the companies are investing in sustainability initiatives such as energy storage, water reduction, bio-based products, energy efficiency, and renewable energy. The driving forces for a sustainable chemical industry are concerns over climate change, environmental impacts associated with chemical industry operations, and related financial benefits.
On top of it, while innovative digital technologies are transforming the way chemical companies manage their supply chains, improve operational efficiency, and develop new products, Artificial Intelligence (AI) has the potential to improve prediction accuracy significantly.
Therefore, adding fundamentally sound chemical stocks NEU, FUPBY, and ODC to your portfolio could be wise. Let’s take a closer look at the featured stocks.
NewMarket Corporation (NEU)
NEU engages in the manufacture and sale of petroleum additives. The company provides lubricant additives for use in various vehicle and industrial applications, engine oil additives, and industrial additives designed for products for industrial applications and industrial specialty applications.
On July 3, the company paid its shareholders a quarterly dividend of $2.25 per share on its common stock, reflecting an increase of $0.15 from the last quarterly dividend of $2.10 per share.
NEU pays a $9 per share dividend annually, translating to a 2.08% yield on the current price level. The company's dividend payments have grown at a CAGR of 4.1% over the past five years, and its four-year average dividend yield is 2.17%.
In terms of trailing-12-month PEG, NEU is trading at 0.15x, 46.7% lower than the industry average of 0.29x. Also, its trailing-12-month EV/EBIT multiple of 11.84 is 6.3% lower than the industry average of 12.64x.
During the first quarter that ended March 31, 2023, NEU's total revenue increased 6.1% year-over-year to $702.79 million, while its gross profit rose 27.6% from the year-ago value to $198.04 million.
In addition, the company's net income improved by 64.5% year-over-year to $97.58 million, while its EPS amounted to $10.09, reflecting an increase of 75.5% from the prior-year quarter. Also, its EBITDA came in at $155.89 million, up 40.6% year-over-year.
NEU's revenue and net income have grown at CAGRs of 8.2% and 4.6% over the past three years, respectively. Also, its EPS increased at a CAGR of 8.9% over the same period.
NEU’s trailing-12-month ROCE and ROTA of 40.05% and 13.52% are 275% and 188.7% higher than the industry averages of 10.68% and 4.68%, respectively. Likewise, its trailing-12-month levered FCF margin of 6.85% is 92.8% higher than the industry average of 3.55%.
NEU's shares have gained 44.3% over the past year to close the last trading session at $434.08.
NEU's POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. Among the 85 stocks in the Chemicals industry, it is ranked #4. Click here to see NEU's rating for Momentum.
Fuchs SE (FUPBY)
FUPBY is a Germany-based company specializing in developing, producing, and distributing lubricants and related specialties for industry, automotive, and other sectors. Its portfolio of products includes engine oils, transmission fluids, hydraulic oils, metalworking fluids, greases, and many other lubricants.
On May 3, the company passed a resolution to change the name from FUCHS PETROLUB SE to FUCHS SE, as the term 'Petrolub' is no longer relevant to the company's focus on developing, manufacturing, and distributing highly efficient lubrication solutions made from sustainable resources. The renaming to FUCHS SE is expected to take place on July 3, 2023.
Commenting on this, CEO Stefan Fuchs said, "As a high-tech company, we want to expand our technology leadership in strategically important application areas, be it in the fields of digitalization, future mobility, or sustainability. With the current renaming, we are underlining our focus on advanced, process-oriented, and holistic solutions for lubricants and functional fluids."
In terms of forward non-GAAP PEG, FUPBY is trading at 1.34x, 18.5% lower than the industry average of 1.64x. The stock’s forward EV/Sales of 1.31x is 15.9% lower than the 1.56x industry average. Furthermore, the stock’s forward EV/EBIT of 11.61x is marginally lower than the 11.71x industry average.
FUPBY's sales revenue increased 15.8% year-over-year to €936 million ($1.05 billion) in the fiscal first quarter (ended March 31, 2023). Its gross profit grew 10.3% from the prior-year quarter to €289 million ($323.06 million), while its EBIT rose 10.7% year-over-year to €103 million ($115.14 million). Also, the company's EPS increased 12.5% from the year-ago value to €0.54.
The consensus EPS estimate of $0.60 for the fiscal year 2023 (ending December 2023) represents a 21.9% improvement year-over-year. The consensus revenue estimate of $4.02 billion for the current year represents an 11.8% increase from the same period last year. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing three quarters.
Also, its revenue and net income have grown at CAGRs of 11.6% and 5.8%, respectively, over the past three years. Likewise, its total assets have increased at a CAGR of 7.9% in the same period.
The stock's trailing-12-month ROTA of 10.27% is 119.3% higher than the 4.68% industry average. Likewise, its trailing-12-month ROCE and ROTC of 14.32% and 11.89% are 34.1% and 94.3% higher than the industry averages of 10.68% and 6.12%, respectively.
Over the past nine months, the stock has gained 49.7% to close the last trading session at $10.24.
FUPBY's strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Stability and a B for Growth and Quality. Within the same industry, it is ranked #11. Click here to see FUPBY's ratings for Value, Momentum, and Sentiment.
Oil-Dri Corporation of America (ODC)
ODC is engaged in developing, manufacturing, and marketing sorbent products. The company operates in two segments: Retail and Wholesale Products Group and Business to Business Products Group. Its products include agricultural and horticultural chemical carriers, animal health and nutrition products, bleaching clay, and fluid purification aids.
On June 27, Amlan International, the animal nutrition and health business of ODC, announced the completion of its acquisition of the remaining non-controlling interest of Agromex Importaciones, S.A. de C.V., on May 12, 2023. As a result, Amlan became the complete operating owner of Agromex, further solidifying its position in the Mexican market.
These companies’ combined expertise and resources are expected to contribute to the continued growth in animal production, offering proven products and superior technical services.
On June 8, ODC's Board of Directors declared quarterly dividends of $0.29 per share of its common stock and $0.218 per share of the company's Class B Stock, reflecting an approximate 4% increase for both classes of stock. The dividends will be payable to its stockholders on August 25, 2023. Also, this marks the 20th consecutive year the company has increased its dividends.
The company's current dividend of $1.16 translates to a 1.83% yield, while its four-year average dividend yield is 3.13%. ODC's dividend payouts have grown at CAGRs of 3.8% and 4% over the past three and five years, respectively.
ODC’s trailing-12-month EV/sales ratio of 1.17x is 32.2% lower than the industry average of 1.73x. Likewise, its trailing-12-month EV/EBITDA and EV/EBIT multiples of 9.24 and 13.07 are 31.1% and 30.4% lower than the industry averages of 13.42x and 18.77x, respectively.
For the fiscal third quarter, which ended on April 30, 2023, ODC's sales revenue increased 22.9% year-over-year to $105.43 million. Its gross profit rose 75.7% from the year-ago value to $27.47 million, while its operating income came in at $14.46 million versus an operating loss of $4.03 million.
The company's non-GAAP attributable net income and non-GAAP EPS improved by 466% and 454.3% from the prior-year quarter to $13.32 million and $1.94, respectively.
Over the past three years, its revenue and net income have increased at CAGRs of 11.4% and 10.7%, while its EPS has grown at a 14.5% CAGR over the same period.
ODC's trailing-12-month net income margin of 5.72% is 65.1% higher than the 3.47% industry average. Likewise, its trailing-12-month ROTC and ROTA of 11.12% and 8.45% compare to the industry average of 6.22% and 4.10%, respectively.
The stock has surged 177.3% over the past nine months to close the last trading session at $63.42.
It's no surprise that ODC has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth and B for Quality. Out of 85 stocks in the same industry, it is ranked #6.
In addition to the POWR Ratings we've stated above, we also have ODC's ratings for Value, Momentum, Stability, and Sentiment. Get all ODC ratings here.
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NEU shares were trading at $432.82 per share on Friday afternoon, down $1.26 (-0.29%). Year-to-date, NEU has gained 40.78%, versus a 18.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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