Quaker Chemical Corporation - Value

How hot has the chemical sector been in the last year? Quaker Chemical Corporation's (KWR) earnings in the first 9 months have already surpassed the full year earnings for every other year in its history. To top it off, the stock still isn't very expensive, trading with a price-to-sales ratio of just 0.8.

Quaker's chemical business reflects the pickup in the global economy because while it is headquartered in Pennsylvania, it has a presence in every major manufacturing country in the world. It also has regional headquarters in the growth powerhouses of Brazil and China.

The company also produces process chemicals and specialty chemicals for some of the key building block industries such as primary metals and metalworking.

Quaker Surprised on the Third Quarter by 38%

On Oct 26, Quaker Chemical reported its third quarter results and for the 4th consecutive time it surprised on estimates. Earnings per share were 76 cents compared to the consensus of 55 cents. It made 45 cents in the year ago period.

Sales jumped 16% in the third quarter to $137.7 million from $118.9 million a year ago. Volumes were close to the second quarter volumes despite a seasonal slowdown in Europe and increasing raw material costs. Sales were also up 26% for the first 9 months of the year.

Outlook Is Positive But Sees Some Slowdown

This Zacks #1 Rank (strong buy) has its hands in all baskets. It has a growing presence in India, China and Brazil and expects to also benefit from rebounding U.S. and European markets. So it has new organic growth opportunities with the stability of the old growth.

The company is seeing economic activity plateauing in certain markets which should lower demand in the fourth quarter.

Combined with seasonal slowdown and pressure on its margins due to raw material cost increases, it expects fourth quarter results to remain strong but be below the first half levels.

Zacks Consensus Estimates Jump

Despite the company warning about some slowing off the hot first half numbers, analysts are still bullish.

1 estimate has been revised higher for 2010 in the last 30 days which has pushed the Zacks Consensus up by 28 cents to $3.00 per share. That is earnings growth of 77.5%.

Analysts expect another 6.3% growth in 2011, as the 2011 Zacks Consensus has jumped to $3.19 from $2.94 in the last month.

The Value is Still With Quaker

Quaker is trading at just 12.6x forward estimates, under its peers at 16.2x and under the S&P 500 at 14.7x.

It also has an attractive price-to-book ratio of 2.3 which is within the value parameters of under 3.0.

The company has a strong return on equity (ROE) of 20.2% whereas its peers are averaging 14.2%.

Shares have been powering higher and now trade at a 5-year high.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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