Value Play: Ferro Corporation (FOE)

Ferro Corporation (FOE) has surprised on the Zacks Consensus 3 out of the last 4 quarters as demand for specialty chemicals has remained strong worldwide.

Ferro manufactures specialty chemicals, coatings, ceramics and plastics for many industries including electronics, solar energy, appliances (think of the coating inside stoves), household furnishings and pharmaceuticals.

The company is headquartered in Cleveland but is global in reach, with operations in 25 countries and customers in 100 countries.

Big Turnaround in Earnings Expected in 2010

In the last 60 days, 2010 estimates have risen to 96 cents from 87 cents. Analysts now expect earnings growth of 260% in 2010.

Anything would have been better than 2009 which saw a loss of 60 cents per share. But analysts also expect the growth to continue into 2011.

The 2011 Zacks Consensus Estimate has moved up 11 cents to $1.12 per share in the last 60 days. This is further earnings growth of 16.9%.

The specialty chemicals area is hot as the emerging market economies grow quickly. Earnings are expected to grow, on average, at 34% over the next five years.

Sales Jumped 36% in the Second Quarter

On July 26, Ferro announced its second quarter results which saw sales jump to $543 million from $399 million in the year ago period as customer demand continued to improve.

Increased sales volume contributed to 30% of the growth in sales year over year while higher prices and product mix added 8%.

Higher sales of precious metals, including increases in prices and volume, accounted for about 10% of the sales increase compared to 2009.

Raised Outlook for the Rest of 2010

In July, the company expected customer demand to follow previous historic trends, which meant higher sales in the first half compared with the second half of the year. Cost controls initiated in 2009 are expected to boost 2010 however.

Assuming a worldwide GDP growth rate of 2% and no double dip in its key U.S., Europe and Asian markets, Ferro raised some of its financial performance metrics.

It now expects 2010 sales to rise between 15% to 20% compared to 2009. Ferro is expected to report third quarter results on Oct 25.

Is Ferro a Value Stock?

Yes, Ferro is technically a value stock. It is also a little more expensive than its peers at 14.2x forward estimates compared with a P/E of 12.4 for its peers.

While this is within what is considered “value” (as I look at those stocks trading under 15x) it is more in line with the S&P 500 at the moment which doesn’t make it very “cheap.”

However, its price-to-book ratio of 2.2 is within the value range as is its price-to-sales ratio of just 0.6.

And given its expected growth rate, it has PEG ratio of just 0.4.

Ferro is a Zacks #1 Rank (strong buy) stock.

FERRO CORP (FOE): Free Stock Analysis Report

About Tracey Ryniec 60 Articles

Affiliation: Zacks Investment Research

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

Visit: Zacks Investment Research

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