Solutia manufactures a diverse group of chemicals including Saflex, an interlayer for laminated glass which is used in the solar industry, CPFilms aftermarket window films, the Flexsys family of chemicals for the rubber industry, and Skydrol aviation hydraulic fluid.
China Expansion
The company is the world's only single source supplier of EVA, TPU and PVB solar encapsulants.
Because of strong growth in the Chinese solar industry, Solutia announced in Dec 2010 that it would expand its current operations at its Suzhou, China facility to include additional production lines in support of Vistasolar ethylene vinyl acetate (EVA) encapsulant.
It currently produces Vistasolar encapsulants in Germany.
Solutia is a global company, operating in 50 locations outside of the United States. It derives the majority of its sales from outside of the United States.
Outlook for 2011
On Nov 10, at its investor day conference, Solutia provided bullish 2011 guidance.
The company expects the recovery in the developed economies to continue and that there will be growth in the emerging markets.
The earnings growth trend over the last 3 years has been to the upside.
The company reaffirmed its 2010 guidance range of $1.40 to $1.50 per share.
The 2010 Zacks Consensus Estimate is currently calling for $1.51 per share, which is just outside of the high end of the company's range and would be double digit earnings growth of 31%. Solutia made just $1.15 in 2009.
It also expects 2011 earnings per share in the range of $2.00 to $2.25. The Zacks Consensus is basically in the middle at $2.15 per share. This would be further earnings growth of 42.5%.
Mixed Earnings Surprise Track Record
Solutia has only been a public company since 2008. In that time it has surprised on the estimate 7 times and missed twice. In the last 4 quarters, it has surprised 3 times, including in the third quarter by 2.4%.
You can see the earnings surprise history below.
Solutia will report fourth quarter and full year results on Jan 27.
Still Has Value Fundamentals
The last time I reviewed Solutia, in Feb 2010, it had a forward P/E of 12.7.
Its a bit cheaper now, trading at just 11x forward estimates. Its price-to-book ratio, however, has jumped to 4.4 from 2.8. But it's price-to-sales ratio is just 1.5.
The company has an attractive return on equity (ROE) of 20.3%.
Solutia is a Zacks #2 Rank (buy) stock.
Read the Feb 25, 2010 article.
This Week's Value Zacks Rank Buy Stocks
Investors can still find value amongst the gold stocks, even as shares have surged in 2010. Barrick Gold Corporation (ABX) is trading at just 11.9x forward estimates and is expected to report double digit earnings growth in both 2010 and 2011. Read the full article.
Horsehead Holding Corporation (ZINC) is cashing in on the perfect storm of strong demand for zinc products and higher zinc and nickel prices. The company has surprised on estimates 3 out of the last 4 quarters by an average of 35.6%. Will it do it again in the fourth quarter? Read the full article.
Rudolph Technologies, Inc. (RTEC) is cashing in on semiconductor demand as revenue rose 124% in the third quarter. Shares are cheap, trading at just 8.8x forward estimates. Read the full article.
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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