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Ingevity Corporation NGVT is expected to benefit from the acquisition of the Capa caprolactone business, its cost-saving actions and growth in its applications driven by regulations and technology adoption amid demand weakness in certain businesses.
Shares of this specialty chemicals and materials maker are down 29.9% year to date, compared with the 7.5% decline of its industry.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Going in NGVT’s Favor?
Ingevity is gaining from higher sales in China as automakers in the country have essentially completed the implementation of the China 6 standard. It saw higher demand for its automotive activated carbon products in China in the second quarter of 2020 on the back of the China 6 implementation. The momentum is expected to continue in the third quarter.
Moreover, Ingevity is seeing healthy growth in pavement technologies on strength in North America. It is seeing continued adoption of the Evotherm warm-mix technology.
The company is also benefiting from the acquisition of the Capa caprolactone business. Capa has a strong and market-leading business that focuses on high-growth end-use applications. The buyout enabled Ingevity with a new technology platform to drive revenue and earnings growth.
The company is also taking certain cost-reduction measures in the wake of the coronavirus pandemic to boost profitability. These actions include reduction of headcount through an early retirement program, streamlining of manufacturing processes and reduction of traveling expenses and plant spending. Ingevity saw benefits of these initiatives in the second quarter. The company expects these actions to deliver $35 million of savings this year.
A Few Concerns
Ingevity is exposed to weakness in industrial specialties applications. In the second quarter, its Performance Chemicals unit was affected by lower demand in industrial specialties applications including printing inks. The company witnessed a roughly 24% decline in sales related to industrial specialties applications in the quarter, hurt by weak demand in industrial markets due to the impacts of the pandemic as well as the exit of an unprofitable distribution deal. Pressure in industrial specialties is likely to continue going forward.
The company is also facing headwind from lower sales to oilfield technology customers. Sales from its oilfield technologies business tumbled around 52% in the second quarter on lower drilling and production in North America. Drilling and production have been impacted by a global glut of inventory. Weakness in oilfield technologies is likely to continue moving ahead amid lower demand.
Ingevity Corporation Price and Consensus
Ingevity Corporation price-consensus-chart | Ingevity Corporation Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include Barrick Gold Corporation GOLD, Yamana Gold Inc. AUY and Eldorado Gold Corporation EGO.
Barrick Gold has a projected earnings growth rate of 79.6% for the current year. The company’s shares have gained around 46% in a year. It currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Yamana Gold has a projected earnings growth rate of 80% for the current year. The company’s shares have rallied roughly 51% in a year. It currently carries a Zacks Rank #2 (Buy).
Eldorado Gold has an expected earnings growth rate of 2,218.8% for the current year. The company’s shares have gained around 41% in the past year. It currently carries a Zacks Rank #2.