Friday, March 21, 2014

Wildcat Team Surprises

Last week-end the Florida Gators barely escaped the University of Kentucky Wildcats in a pitch battle to win the Southeastern Conference of the NCAA Men’s Basketball Tournament.  Few thought Kentucky could get as close as one point to the favored Florida team.

Down the road from the Wildcats home territory of Lexington, resides another team  - Covington-based specialty chemicals producer Ashland, Inc. (ASH:  NYSE).  The company produces natural and synthetic polymers from plant seed and cellulose ethers.  Its chemicals have multiple applications in the pharmaceutical, personal care, food, beverage, energy, construction, pulp, paper and other industries.  Some of the Ashland chemicals get used in composite resins, coatings and adhesives.

Ashland is large, smart company that has changed quite a bit from its origins nearly a century ago as an oil refinery.  Like the Florida Gators, Ashland has benefited from excellent coaching  -  leadership that took Ashland out of the refinery game and into specialty chemicals.

In the most recently reported twelve months Ashland recorded $7.8 billion in sales, providing $686.0 million in net income or $8.74 per share.  The company is a chronic producer of cash resources, converting 8.9% of sales to operating cash flow.  Willing to share that largess with shareholders, Ashland is paying a dividend of $1.36 per share.  The dividend yield at the current price level is 1.4%. 

The stock has returned a total of 18.4% over the past year from dividend and price appreciation.  The half dozen or so analysts who have ratings on the stock have a median price target of $107.50.  That implies a potential total return of 15.1% if the target is reached in the next year. 

Ashland has delivered upside surprises in three of the last four quarters.  The performance has helped put the stock on an upward price trajectory that has no significant overhead price resistance.  A review of historic trading patterns in ASH suggests the stock could climb as high as $125.00.  Perhaps fundamental analysts have under estimated Ashland  -  just like basketball fans missed the tenacity of the Kentucky Wildcats. 


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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