Buoyed by record second-quarter 2014 results, shares of Neenah Paper Inc. (NP) scaled a new 52-week high of $54.94 during yesterday’s trading session, before closing a notch lower at $54.40. This translates to a healthy year-to-date return of 27.5%. The stock is currently trading at a forward P/E of 16.8x and has long-term earnings growth expectation of 10.0%.
Growth Drivers
Neenah Paper reported record quarterly sales of $230.4 million with impressive double digit earnings growth in both segments. Anchored by continued success in the core businesses and healthy progress in niche market areas, revenues increased 9% year over year.
Adjusted earnings of 90 cents per share comfortably beat the Zacks Consensus Estimate by 6 cents and the year-ago tally by 10 cents. Neenah Paper reported a record operating income of $25.9 million in the quarter, up 15% year over year due to stellar top-line growth and increased margins that more than offset higher input and other costs.
Despite higher pulp prices, the company’s manufacturing efficiencies and improved productivity ensured sustainable margin expansion. Besides its core areas of focus, Neenah Paper is also striving to diversify its product portfolio in order to drive further growth. Operating cash flow touched a record high at $37.1 million compared with $27.6 million generated in the year-ago period, primarily due to increased earnings and working capital efficiencies.
Neenah Paper also announced a 12.5% year-over-year hike in its quarterly dividend payout to 27 cents per share or $1.08 on an annualized basis. This is the fourth dividend increase for Neenah Paper since Dec 2012. A steady dividend payout with healthy increases at periodic intervals is part of the long-term strategy of the company to provide attractive risk-adjusted returns to its stockholders. Moving forward, Neenah Paper expects to increase its dividend yield in the next couple of years to around 3%.
Neenah Paper looks well positioned to capitalize on opportunities in growing markets through both organic and inorganic means. With a strong balance sheet, healthy cash flow and effective management, the company appears poised to exploit value-added opportunities to bolster its prospects.
Other Stocks to Consider
Neenah Paper presently has a Zacks Rank #2 (Buy). Other players in the industry worth reckoning include Mercer International Inc. (MERC), Orchids Paper Products Co. (TIS) and Rexam plc (REXMY), each carrying a comparable Zacks Rank #2 (Buy).
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