NGVT Stock Study (8-21-23)

Posted by Mark on October 14, 2023 at 07:06 | Last modified: August 21, 2023 14:54

I recently did a stock study on Ingevity Corp. (NGVT) with a closing price of $51.65. The original study is here.

Value Line writes:

     > Ingevity Corporation is a global manufacturer of specialty chemicals
     > and high-performance carbon materials. Performance Materials (33% of
     > ’22 sales) and Performance Chemicals (67%). Its products are used in
     > applications including auto parts that reduce gas emissions, asphalt
     > paving, oil exploration & production, agrochemicals, adhesives,
     > lubricants, publication inks, coatings, elastomers, and bioplastics.

This medium-size company has grown sales and EPS at annualized rates of 5.7% and 9.2% over the last 10 years. The stock starts trading publicly in 2016. Excluding ’13-’15, historical sales and EPS growth are 9.8% and 22.8%, respectively. Visual inspection is not the best. Lines are mostly up and parallel with sales declines in ’15, ’16, and ’20 along with EPS declines in ’15, ’16 (big), and ’21 (big). PTPM is above peer and industry averages since ’13 ranging from 9.6% in ’16 to 19.6% in ’18 with a last-5-year mean of 16.9%.

Since data history begins in ’16, ROE leads peer and industry averages ranging from 18.0% in ’21 to 56.3% in ’17 with a last-5-year mean of 34.3%. Debt-to-Capital is greater than peer and industry averages with a last-5-year mean of 68.6%.

Quick Ratio is 1.1 and Interest Coverage is 4.1. The latter is less than I like to see. Value Line rates the company B+ for Financial Strength.

With regard to sales growth:

• CNN Business projects 5.9% YOY and 5.7% per year for ’23 and ’22-’24, respectively (based on 7 analysts).
• YF projects YOY 1.1% and 5.7% for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 0.2% and 4.5% for ’23 and ’24, respectively (4).
• Value Line projects 4.0% annualized growth from ’22-’27.
• CFRA projects 1.1% YOY and 3.4% per year for ’23 and ’22-’24, respectively (7).
• M* offers a 2-year ACE of 3.4%.

I am forecasting near the bottom of the range at 2.0% per year.

With regard to EPS growth:

• CNN Business projects 8.8% YOY contraction and 4.3% growth per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with 5-year annualized contraction of 8.0%.
• MarketWatch projects annualized contraction of 9.8% and 3.1% for ’22-’24 and ’22-’25, respectively (7 analysts).
• Nasdaq.com projects growth of 32.8% YOY and 17.7% per year for ’24 and ’23-’25 (3/4/2 analysts for ’23/’24/’25).
• Seeking Alpha projects 4-year annualized growth of 1.0%.
• YF projects YOY 32.8% contraction and 27.0% growth for ’23 and ’24 (6) along with 5-year annualized growth of 6.2%.
• Zacks projects YOY 32.1% contraction and 32.8% growth for ’23 and ’24, respectively (3).
• Value Line projects 4.2% annualized growth from ’22-’27.
• CFRA projects contraction of 26.4% YOY and 4.5% per year for ’23 and ’22-’24, respectively (5).

My forecast of 0.0% is less than the 4-long-term-estimate mean of 0.9%. I think this is conservative because the -8.0% estimate strikes me as dubious (if excluded as an outlier, then arithmetic mean of the others is 3.8%). I will use ’22 EPS of $5.50/share as high EPS and ’21 EPS [arbitrary] of $2.95 as low EPS (with 0% growth rates for both).

My Forecast High P/E is 19.0. Since 2017 (excluding upside outlier of 66.8 in ’16), high P/E has ranged from 14.5 in ’22 to 30.4 in ’21 with a last-5-year mean of 23.9. The last-5-year-mean average P/E is 19.0. I am forecasting conservatively by using the latter (only ’22 is lower).

My Forecast Low P/E is 10.0. Since 2016, low P/E has ranged from 5.7 in ’20 to 21.5 in ’21 (excluding possible upside outlier of 27.7 in ’16) with a last-5-year mean of 14.2. I am forecasting toward the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast (LSPF) of $29.50 is default based on $2.95/share low EPS. This is [ultra-conservative, being] 42.9% less than the previous closing price and 36.6% less than the 52-week low.

These inputs land NGVT in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 15.1%.

PAR (using Forecast Average—not High—P/E) of 9.1% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 41 studies (my study and 13 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 6.0%, 8.3%, 19.7, and 11.2, respectively. I am lower across the board. Value Line’s projected average annual P/E of 20.0 is higher than MS (15.5) and mine (14.5).

MS high / low EPS are $7.64 / $5.18 vs. my $5.50 / $2.95 (per share). My high EPS is lower due to a lower EPS growth rate. Value Line projects a future [high] EPS of $7.40, which is close to MS and much higher than mine.

MS LSPF of $42.40 implies a Forecast Low P/E of 8.2 that is higher than the above-stated 11.2. MS LSPF is 26.9% less than the default $5.18/share * 11.2 = $58.02 [invalid on today’s date], which results in more conservative zoning. MS LSPF remains 43.7% greater than mine [ultra-conservative].

My TAR (over 15.0% preferred: “check!”) is less than the 22.4% from MS.

MOS backing the current study seems robust.

I track a few different valuation metrics. PEG is indeterminate based on my 0% EPS growth rate. Relative Value per M* [(current P/E) / 5-year-mean average P/E] is significantly undervalued at 0.6. Kim Butcher’s “quick and dirty DCF” prices the stock at 12.0 * [$7.40 – ($0.00 + $3.50)] = $46.80: overvalued by 10.4%.

I would look to BUY under $48/share.

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