Versum Materials, Inc. VSM has been performing well of late. The company has seen its shares pop roughly 12% over the past six months. If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
Let’s delve deeper into the factors that make this chemical company an attractive investment option.
What’s Working in Favor of VSM?
Solid Rank & VGM Score: Versum currently sports a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.
An Outperformer: Versum has outperformed the industry over a year. The company’s shares have rallied around 26.9% over this period, compared with roughly 0.5% rise recorded by the industry.
Healthy Growth Prospects: The Zacks Consensus Estimate for earnings for fiscal 2018 for Versum is currently pegged at $2.35, reflecting an expected year-over-year growth of 23%. Moreover, earnings are expected to register a 17.3% growth in third-quarter fiscal 2018. The company also has an expected long-term earnings per share growth of 13%, higher than the industry average of 10.9%.
Positive Earnings Surprise History: Versum has an impressive earnings surprise history, outpacing the Zacks Consensus Estimate in three of the trailing four quarters, delivering a positive average earnings surprise of 9.4%.
Attractive Valuation: Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value chemical stocks, Versum is currently trading at trailing 12-month EV/EBITDA multiple of 12.1, much cheaper compared with the industry average of 21.6. This signals more upside for the stock.
Superior Return on Equity (ROE): Versum’s ROE of 459.9%, as compared with the industry average of 15.7%, manifests the company’s efficiency in utilizing shareholder’s funds.
Strong Q2 and Upbeat Outlook: Versum saw its profits jump roughly 37% year over year to $61.6 million or 56 cents per share in second-quarter fiscal 2018 (ended Mar 31, 2018). Adjusted earnings of 59 cents per share topped the Zacks Consensus Estimate of 52 cents.
Sales jumped around 26% year over year to $340.7 million, driven by strong growth in the company's Advanced Materials product lines and Delivery Systems & Services (DS&S) segment. It also surpassed the Zacks Consensus Estimate of $305 million.
Expectations of improved industry capital spending and continued strength in the semiconductor market along with the company’s position with key customers enabled Versum to provide a favorable outlook for fiscal 2018.
The company sees continued improvement in margins in its Materials segment while activities in DS&S to remain strong through the balance of the year. It also expects successful completion of several capital projects to boost future profitable growth.
For fiscal 2018, the company expects total sales in the range of $1,320-$1,360 million (up from prior guidance of $1,250-$1,300 million), adjusted EBITDA of between $425 million and $445 million (up from previous guidance of $415-$435 million), excluding one-time costs related to the implementation of its enterprise resource planning system.
Versum Materials Inc. Price and Consensus
Versum Materials Inc. Price and Consensus | Versum Materials Inc. Quote
Other Stocks to Consider
Other top-ranked stocks in the basic materials space worth considering include Westlake Chemical Corporation WLK, The Chemours Company CC and Celanese Corporation CE, each carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Westlake Chemical has an expected long-term earnings growth rate of 12.2%. Its shares have rallied roughly 92% over a year.
Chemours has an expected long-term earnings growth rate of 15.5%. The company’s shares have gained around 30% in a year.
Celanese has an expected long-term earnings growth rate of 8.9%. Its shares have rallied roughly 34% over a year.
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