Ashland's value is hard to ignore

Posted Feb 4th 2008 5:20PM by Joseph Lazzaro
Filed under: Stocks to Buy

Market pullbacks and periods of protracted economic sluggishness are not the most tranquil circumstances, to say the least, but they do create value plays, and with the above in mind, Ashland is worth a review.

Ashland Inc. (NYSE: ASH) is a global, diversified chemical company that's involved in the plastic, resin/polymer, water treatment, and oil-change fields.

Analysts expect high-single-digit revenue growth for Ashland's water technology and Valvoline segments, but softer growth in performance materials and chemicals.

Further, a restructuring initiative is yielding cost reductions; margins remain adequate. Moreover, there is a sense that ASH's shares do not reflect the improving outlook in many of ASH's businesses, and ASH's p/e of 14 speaks to that undervaluation. The Reuters FY 2008/FY 2009 EPS consensus estimates for ASH are $3.19/$3.83.

The risks? A slowdown in global economic growth would hurt ASH's results. Analysts also have an eye on ASH's raw material costs.

The First Call mean rating for ASH is: Hold [8 firms]. Mean 2008 target: $57.00 [high: $70, low: $48].

Stock Analysis: Ashland is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from ASH's shares. Sell/Stop Loss if you were to purchase shares in this company: $28.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: ASH, Ashland, chemical sector, chemicals, environment, plastics, water treatment