Company Spotlight - Newmarket Corp: |  - Co. Spotlights available via RSS feed
| Oil Additives Add Up To Profits |  
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| | NEU | $73.32 | The Good: Higher dividend, stock buyback program.
The Bad: Relatively high valuation; stock at an all-time high.
The Beautiful: High Return on Equity, increasing demand for products. | P/E | 15.5 | | PSR | 0.68 | | ROE | 24% | | Debt/Eq. | 0.50 | | Div.Yield | 1.2% |
March 19, 2008 - Newmarket Corp. (NEU-NYSE) thinks petroleum needs a little something added to it. The company is a holding entity for two operating subsidiaries: Afton Chemical (formerly Ethyl Petroleum Additives) and Ethyl. Afton Chemical manufactures petroleum additives used to improve refining and performance in gasoline, diesel, and other fuels and as a lubricant in motor oil, fluids, and grease (99% of sales in 2007). Ethyl's main product is the antiknock additive tetraethyl lead (TEL) (1% of sales in 2007).
Efficiencies are showing up in the bottom line. At the end of last year, sales increased by 9% when compared to 2006, but earnings from continuing operations rose by 23%. Much of that productivity came from higher prices which offset the cost of raw materials and kept operating margins steady. This had a positive effect on better targeting the product mix, with focus on more effective formulations and varied products to better supply consumers. Over the next 5 years, analysts look for sales to increase by 8% a year, on average, while earnings per share should increase by 13% a year, on average. The company has strong cash flow with debt sparingly used for new projects. The budget for expenditures in 2008 is $35 million to $45 million. Cash on hand is $72 million with current assets almost 3 times current liabilities. The company started paying a dividend of 50 cents a share in 2006 and bumped that to 80 cents for 2008. It's also buying in its own shares and authorized $83 million in 2007 to repurchase stock. $17 million of that funding is yet to be used. NEU was selling for $2.70 in 2002, reflecting 4 years of ever decreasing earnings, going from $4.25 to $3.30 to 70 cents to 60 cents to bottoming at 57 cents. Then the rebound started. EPS jumped to $1.21, then $1.42, followed by $2.01, $3.30 and finishing last year with $4.07. This year analysts expect $4.35 and next year, $4.65. Other numbers: Officers and directors own 11.6% of the stock. Two large institutional buyers have 15.3%. Return on Equity is a wonderful 24% for the last twelve months. Analysts predict 22.5% for this year and 19.5% next year. Net profit margin is 5%. The average annual P/E ratio has been between 8.6 and 15.1 for the last 5 years. It's trading toward the high end of that now. With the demand for petroleum products ever increasing, the market for NEU's products is healthy. Management delivered good earnings increases for the last 5 years and should continue to do so. The only caveat is the stock price. Investors already have bought this story and bid up the stock accordingly. As you dig deeper, remember how far the stock has come over the last few years, and that it's trading at an all-time high.
Company Web site: http://www.newmarket.com - Ted Allrich |
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