In Q1, Ashland exceeded the First Call EPS estimate, despite sluggish-to-poor demand conditions that saw volumes decline 10-40%. Further, the integration of acquired Hercules Inc. has gone well, with more than $60 million in operational savings registered as of the close of Q1. The First Call F2009 / F2010 EPS estimates for ASH are $1.52 / $1.95.
Moving forward, demand in key Ashland performance areas will likely remain flat for the remainder of F2009, due to poor-to-sluggish global macroeconomic conditions, but rigorous cost containment and debt reduction should maintain share value until the global economy starts to recover.
The above strengths, combined with logistics efficiencies, and superior marketing in consumer markets, make ASH a bargain with a p / e of 13, particularly given the very good prospects for substantial share appreciation (+50%).
Stock Analysis: Ashland is a moderate-risk stock. Consider buying a 25% position in ASH now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. More-cautious investors may choose to wait until ASH pulls-back to $21 or $18, but keep in mind that ASH may not retreat to either level. Under any circumstance, don't buy more than 50% of your ASH position in the first half of 2009. Sell / Stop Loss if you were to buy shares in this company: $8.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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