Value Stock: Lubrizol Corporation (LZ)

Lubrizol Corporation (LZ) did not disappoint in its recent earnings report as it crushed the Zacks Consensus Estimate for the third straight quarter and also raised full year guidance. What slowdown in the global economy?

Founded in 1928, Lubrizol manufactures specialty chemicals, including lubricant additives for engine oils, industrial lubricants and fuel additives for gasoline and diesel fuel. It also provide additives for personal care products and pharmaceuticals.

It has a global reach, with manufacturing facilities in 17 countries and offices around the world.

Lubrizol Easily Beat in the Second Quarter

On July 29, Lubrizol surprised on the Zacks Consensus Estimate by 21%. Earnings per share were $2.88 versus the consensus of $2.38. It made just $1.92 in the year ago period.

Revenue rose 26% to $1.4 billion from $1.11 billion in the second quarter of 2009. Volumes rose 19%. The company also saw an 8% improvement in the combination of price and product mix which offset 1% losses from unfavorable currency.

It was a solid quarter across all of its segments.

“In a continuation of first quarter trends, all product lines and geographic markets experienced strong year-over-year and sequential volume increases due to further recovery in demand, underlying market growth and favorable order patterns,” said James Hambrick, CEO.

“Also, despite the anticipated pressure on margins from higher raw material costs, operating results in each segment benefited from the strong volume and a favorable product mix from top-performing businesses, such as driveline and industrial additives, Estane® engineered polymers and Noveon® consumer specialties,” he added.

Repurchase Program Expanded

Lubrizol has been rewarding shareholders several different ways. It currently pays a dividend, with a yield of 1.5%. But it also has been buying back shares. Year to date, it has repurchased 1.575 million shares for $125.5 million at an average price of about $80 per share.

The Board recently authorized the company to purchase more shares which would increase the program to 7.2 million shares, or about 10% of Lubrizol’s common shares outstanding.

Full Year Guidance Raised

Given the outstanding second quarter, it’s not surprising that Lubrizol is raising full year guidance for the third time this year.

The company now expects 2010 earnings in the range of $9.60 to $10.00 which is at least 25% higher than its Feb 4 forecast of just $7.70 to $8.30.

Lubrizol made just $7.55 in 2009.

Zacks Consensus Estimates Jump

Analysts scrambled to catch up as most raised their estimates in the last week. The 2010 Zacks Consensus Estimate jumped to $9.91, with 7 higher revisions, from $8.71 in the last 7 days.

This is on the high end of the company’s guidance range but given all estimate beats and the higher forecasts this year, analysts feel safe on revising to the upside.

Earnings are expected to grow 31.3% in 2010.

Questions still remain about 2011 and about whether or not this pace of growth can be sustained as the stimulus fades. Analysts have EPS actually declining by 1.5% in 2011.

Value Fundamentals

Lubrizol continues to be a value stock even as its share price has soared to near its 52-week high.

It has a forward P/E of just 9.6 which is well under the industry average of 14.7. It’s price-to-book ratio, while still in the “value” range, is on the higher side at 2.9.

But Lubrizol’s PEG ratio is a juicy 0.5, while the industry is at 1.4.

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

LUBRIZOL CORP (LZ): Free Stock Analysis Report

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About Tracey Ryniec 60 Articles

Affiliation: Zacks Investment Research

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

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