Lowering Rating to HOLD; 2Q17 EPS Misses by 2 Cents; Reducing Estimates
- 2Q17 (June) adjusted EPS were $1.32 (vs $1.33 a year earlier) and 2 cents below our projection due to lower volumes and higher raw material costs in the Polymer segment;
- For 2017, our EPS estimate is now $4.70 (from $4.72), up 12% from 2016, aided by continued efficiency gains, cost savings, and the lack of 2016’s unusual expenses, partially offset by increased competition in Polymers and rising raw material costs;
- Our 2018 EPS estimate is now $5.22 (from $5.29), up 11% from our 2017 estimate;
- With the shares trading at 17.9x our 12-month forward EPS estimate, or around 163% of our 11% projected 3‑to‑5 year EPS growth rate, our rating is now HOLD (from Gradually Accumulate).
Stepan is engaged in the production and sale of specialty and intermediate chemicals, which are sold to other manufacturers for use in a variety of end products. The company has three reportable segments: Surfactants, which are used in a variety of consumer and industrial cleaning compounds as well as in agricultural products, lubricating ingredients, oil field chemicals and other applications; Polymers, which are used primarily in plastics, building materials, refrigeration systems and coatings, adhesives, sealants and elastomers applications; and Specialty Products, which are used in food, flavoring, nutritional supplement and pharmaceutical applications.
Great Lakes Review is located in Cleveland, Ohio, was founded in 1981 and became a division of Wellington Shields & Co. LLC in 2011. Great Lakes Review is a research boutique focused on the fundamentally-oriented investor seeking companies that dominate their respective specialty niche regardless of industry. The objective is to make money for the long-term by gradually accumulating a diversified portfolio from a universe of no more than 30 companies. Although short-term-oriented accounts will be alerted to trading opportunities, aggressive sell recommendations are triggered only by a deterioration in long-term fundamentals, not by short-term blips or investor fancy. Coverage of those names that lose their earnings momentum or earnings predictability may be dropped and replaced with more vital candidates.
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