NewMarket Corp (NEU: 118.12 0.00 0.00%) has seen strong demand for its products as the economy recovers from the recession. Sales are up over 25% year-over-year, and valuation remains attractive for this Zacks #2 Rank stock.
NewMarket manufactures petroleum additives through its two subsidiaries: Afton Chemical and Ethyl Corporation. It is based in Richmond, Virginia and has a market cap of $1.7 billion.
Stellar Quarterly Results
NewMarket reported second quarter earnings per share of $2.69, an increase of 34% over the same period in 2009. Total revenues improved 27%, driven by a 26% increase in petroleum additives.
Management mentioned in its latest quarterly report that it believes the overall demand for petroleum additive products is recovering from recessionary effects and is now at pre-recessionary levels.
The gross margin decreased a bit however, from 30.0% to 28.1%. The primary reason for the decline was due to rising raw materials costs coupled with lagging price increases.
Expanding the Business
NewMarket has stated that acquisitions are a top priority. The company acquired a petroleum additives company called Polartech in March, which it completely funded with its own free cash flow. Management has also stated that its main focus remains in the petroleum additives industry, particularly within industrial lubricant additives and fuel additives.
NewMarket will also be introducing a new passenger car motor oil in North America later this year.
The Zacks Consensus Estimate for 2010 is $11.66, or a 5% increase over 2009 EPS. The current 2011 estimate is 7% higher, at $12.49. Estimates have continued to be revised higher, as seen in the Price & Consensus chart.
NewMarket Corp will report earnings on Thursday, October 28 after the market closes.
Returning Value to Shareholders
The company has spent over $79 million year-to-date buying back stock. In July, the board of directors approved a new share repurchase program for up to $200 million through 2012.
After a six year hiatus, NewMarket began paying dividends again in 2006. Since then, the company has raised its dividend at a 32% compound annual growth rate. It currently yields 1.3%.
Valuation
The stock trades at just 10.2x forward earnings, a significant discount to the industry average of 14.9x. Factoring in a projected 5-year growth rate of 15%, NewMarket has a PEG ratio of only 0.7.
NewMarket's return on equity is an impressive 41%. That trumps the industry average of just 5.9%. This justifies the stock's higher than average price to book ratio of 4.1.
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