Ferro Corporation - Value

Specialty chemicals continue to pick up steam. Ferro Corporation (FOE) is expected to grow its earnings by 275% in 2010 which is a big turnaround after the company posted a loss in 2009.

Ferro manufactures the building block chemicals including coatings, ceramics and plastics for many industries including electronics, solar energy, appliances (think of the coating inside stoves), household furnishings and pharmaceuticals.

The company is headquartered in Cleveland but is global in reach, with operations in 25 countries and customers in 100 countries.

Sales Jumped 20% in the Third Quarter

On Oct 25, 2010, Ferro reported its third quarter results and surprised on the Zacks Consensus for the third quarter in a row. Earnings per share were 29 cents, or 5 cents better than the consensus of 24 cents.

Sales rose to $529 million from $442 million a year ago. The company continued to see a recovery in customer demand off the recession lows. Sales volume rose 20% from a year ago and contributed 20% to the growth in sales. Changes in product mix and price contributed an additional 3%.

2010 Guidance Raised

Demand usually falls due to seasonal factors in the fourth quarter from the third quarter and Ferro expects that to be the case this year. However, it still expects fourth quarter sales to be higher than fourth quarter sales of 2009 as the recovery continues.

Due to the continued strong demand, Ferro raised its 2010 sales guidance to between 22 and 24% from its former guidance range of 15% to 20%.

Earnings per share are now expected in the range of $1.02 to $1.08 per share.

The company gave no specific guidance for 2011, but expects that as long as the recovery continues, 2011 will see higher sales and earnings than 2010.

Zacks Consensus Estimates Rise

Given the company's guidance, analysts scrambled to raise estimates. The 2010 Zacks Consensus jumped to $1.05 from 96 cents in the last 2 months.

The 2011 Zacks Consensus also rose by 10 cents to $1.22 per share. This is continued earnings growth of 16.5%.

Still a Value Stock

Ferro is not super cheap but it does have value characteristics. The stock trades at 14.6x forward estimates. One of its peers, Quaker Chemical (KWR) is a bit cheaper, trading at 13.5x. However, they are both trading under the S&P 500 average of 15.2x and are within the value range.

Ferro has a stellar return on equity (ROE) of 20.2% whereas its peers average just 14.2%.

Ferro is a Zacks #1 Rank (strong buy) stock.

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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