Nalco (NLC) Trading Up Today After Positive Barron's Article
Nalco (NYSE: NLC) is trading up approximately 3.85% to $19.15 after Barron's published a positive piece about the company over the weekend.
Nalco is a leading provider of water-treatment and process-improvement chemicals, equipment and services, owning 17% of a $20 billion market. It's No. 1 in its water and energy markets. It's actually approximately three times the size of General Electric (NYSE: GE), its biggest competitor, in water treatment, and has a leading position in technology that squeezes more crude from existing oil wells.
When its current CEO, J. Erik Fyrwald took the helm of Nalco Holding in February 2008, the company was saddled with a heavy debt burden, facing a recession and lacking a clear strategy. As management was preoccupied with that burden, "there was no real integrated approach to driving revenue growth. Resources needed to be reallocated and management teams reorganized. We needed to focus on the future."
When Fyrwald became the CEO, he drafted a three-year growth strategy designed to cut costs, trim debt and reallocate capital and personnel to higher-growth areas.
Management hasn't given guidance for all of 2009, but several analysts believe the company will earn 80 cents a share this year, versus a $2.44 loss in 2008. Wall Street is looking for per-share net of $1.17 in 2010 and $1.41 in 2011. But "we think management will beat those numbers," says Richard Burridge Jr., CEO of RMB Capital Management, a Chicago asset manager that has held Nalco common since 2006. "We believe the company can make as much as $1.30 to $1.40 over the next 18 months."
Burridge argues that earnings can rise at a compound annual rate of 15% in the next three years, which would translate into $2 a share. Applying today's PE multiple of 15 times forward earnings to that target would put the stock at 30.
While Nalco's first-half results disappointed some investors, there were bright spots. Cash flow from operations for Q2 hit a 5-year high of $118 million, 88% above the year-earlier level, and it realized cost savings that put it on track to exceed its full-year cost-savings target of $100 million. Says Fyrwald: "We now have in place companywide capability to drive cost productivity that did not exist one year ago, which will drive more benefit in the second half and into 2010."
Even though Nalco shares have more than doubled from its low of 8, Barron's says they still look very attractive.
Create E-mail AlertRelated Categories
Insiders' BlogStocks Mentioned
-0.25
+0.00Related Entities
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
