American Vanguard Corp. (AVD) reported solid first-quarter 2012 results with a positive earnings surprise of roughly 29%, which pushed this diversified specialty chemicals maker to a new 52-week high on May 22, 2012.
American Vanguard has emerged as a bright star in the chemical firmament leveraging the growing demand for soil insecticides as the U.S. corn growers contend with pest problems. Upward momentum for this Zacks #2 Rank (“Buy”) stock looks to continue thanks to favorable industry trends.
The company’s first quarter profit ballooned 74% year over year to $8.7 million, buoyed by higher demand for its granular soil insecticides. Earnings of 31 cents per share beat the Zacks Consensus Estimate of 24 cents. AVD reported on May 3.
Revenues cruised higher by 32% year over year to $87.3 million, topping the Zacks Consensus Estimate of $81 million. Gross margin rose to 42.8% from 40.8% a year ago on the back of improved factory utilization rates.
Estimates Moving Up
There has been a solitary upward estimate revision for both 2012 and 2013 over the last 30 days. The Zacks Consensus Estimate for 2012 has moved up 4% in that time to $1.04 a share, representing an estimated annualized growth of 30%. For 2013, the Zacks Consensus Estimate rose by roughly 9% to $1.31 per share, indicating an estimated growth of nearly 26%.
Valuation: Stretched but Reasonable
American Vanguard is currently trading at a forward P/E of 25.13x, a roughly 38% premium to the peer group average of 18.16x. The premium is justified considering the company’s long-term EPS growth rate of 25% (versus 18.5% for the peer group). Moreover, American Vanguard has a 1-year ROE of 13.9%, higher than its peer group average of 12.1%, reflecting efficient capital deployment.
Impressive Performance and Bullish Technicals
Technical indicators for American Vanguard show strong bullish momentum. Following a series of sporadic movements, the stock finally broke the 50-day moving average in late-November 2011. Since then, it continues to rally upward and has been trading above the 50-day and 200-day moving averages, which stand at $23.36 and $15.70, respectively; this is below the company’s current price of $26.13. Interestingly, the 50-day moving average continues to read higher than the 200-day moving average, manifesting the bullish trend, with the 200-day moving average acting as the support level.
On the performance front, American Vanguard’s share price has rocketed roughly 89% year-to-date. The company has outperformed the S&P 500 over the past year and has delivered a staggering year-to-date return of 163.2% versus 0.89% for the benchmark.
Founded in 1969, American Vanguard makes specialty chemical products for agricultural and commercial applications. The company, which competes with Aceto Corp. (ACET) and FMC Corp. (FMC), develops and markets an array of chemicals, including insecticides, fungicides and herbicides, for crops, human and animal health protection. American Vanguard has the largest assortment of corn soil insecticides coupled with the most advanced dispensing equipment.
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