KWR Quaker Houghton

The specialty chemical companies are right in the thick of the global economy. Quaker Chemical Corporation (KWR) saw record volumes in the third quarter but raw material prices are biting. Still, this Zacks #2 Rank (buy) has value. It is trading at just 11x forward estimates.

Quaker's chemical business is a barometer of the global economy because while it is headquartered in Pennsylvania, it has a presence in every major manufacturing country in the world. It also has regional headquarters in the growth powerhouses of Brazil and China.

The company produces process chemicals and specialty chemicals for some of the key building block industries such as primary metals and metalworking.

Quaker Beat By 34% in the Third Quarter

On Oct 25, Quaker Chemical reported its third quarter results and surprised on the Zacks Consensus Estimate by 26 cents. Earnings per share were $1.03 compared to the consensus of just 77 cents. It made just 55 cents in the year ago quarter.

This was the company's 11th consecutive earnings surprise.

Sales jumped 32% to $182.3 million from $137.7 million in the year ago period. The product volumes were at an all-time high, jumping 16% including acquisitions.

Raw material price increases are still hitting hard. The company implemented price increases across the globe to combat the costs and restore margins.

Outlook for the Fourth Quarter

Quaker has seen demand in some countries soften and considers the global environment to be "challenging."

But in the fourth quarter, the company expects good volumes, with some seasonality due to the holidays. The uncertainty in Europe had, so far, not affected the company.

Zacks Consensus Estimates Rise But Growth Slows

Since the third quarter results, the 2011 Zacks Consensus Estimate rose 3 cents to $3.30 per share. That is earnings growth of just 1.9% as the company earned $3.24 in 2010.

Further growth is expected in 2012 however, as the Zacks Consensus rose to $3.66 from $3.64 in the last month. That is earnings growth of 10.9%.

Still a Value Stock

Like a lot of stocks, Quaker sold off over the summer but rebounded in the October rally.

But even with the recent rebound, the shares still have attractive valuations.

In addition to a P/E well below 15, which is the cut-off I use for value stocks, Quaker also has a price-to-book ratio of 1.8. A P/B ratio under 3.0 is usually considered "value."

Quaker also has a price-to-sales ratio of 0.7. A P/S ratio under 1.0 usually indicates a company is undervalued.

The company also rewards shareholders with a dividend, currently yielding 2.6%. It also has a solid 1-year return on equity (ROE) of 18.4%.

Quaker continues to put together solid results quarter after quarter. If chemical companies are the building blocks of the global economy, then the economy isn't looking too shabby right here.

This Week's Value Zacks Rank Buy Stocks

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Macy's Inc. (M) recently reported yet another earnings surprise and raised guidance, but a bigger question still looms: what will happen this holiday season? Investors in retail stocks are very jittery this year. This Zacks #1 Rank (strong buy) is trading at just 11.3x forward estimates as uncertainty lingers about the health of the American shopper. Read the full article.

Looking for a value stock that also pays a nice dividend? Plains All American Pipeline, L.P. (PAA) is a rare combination of both value and income. This Zacks #1 Rank (strong buy) is trading with a P/E of 13.9 yet it also has a dividend yielding 6.2%. Read the full article.

TravelCenters of America LLC (TA) is expected to see triple digit earnings growth in 2011. This Zacks #1 Rank (strong buy) has been profiting from strong fuel sales. Shares are cheap, with a forward P/E of just 7.6. Read the full article.

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.

 
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