Ashland Global Holdings is Thursday's IBD Stock Of The Day as a solid growth outlook and a new stock buyback fuel the supplier of additives and specialty ingredients for life sciences, personal care and more. Ashland stock broke a downtrend Thursday, continuing to show leadership in a difficult investing climate.
On Wednesday, Ashland Global announced a 12% quarterly dividend hike and a new $500 million share-buyback program.
'Pristine' Balance Sheet
The shareholder returns reflect management's confidence in Ashland's business outlook, despite economic uncertainty and supply-chain issues, and its "pristine" balance sheet, as CFO John Willis described it on the April 27 earnings call.
Since last August, Ashland has repurchased 11% of outstanding shares. Net debt has shrunk to 130% of EBITDA, down from 360%.
That's partly thanks to Ashland's $1.65 billion sale of its performance adhesives business. Ashland has used some of the proceeds to repay $625 million in debt since December.
Cheap Growth Story
With the divestment, "Ashland's transformation to a pure-play additives and ingredients company (is) now complete," Deutsche Bank analyst David Begleiter wrote in a May 16 note.
He wrote that Ashland has an "attractive" valuation of 11.4 times estimated 2022 EBITDA vs. peers valued at a 19.3 multiple. Begleiter hiked his price target for ASH stock to 122 with a buy rating after Q2 results. Ashland, "for the first time this cycle, fully offset higher raw material, freight and energy costs" with price increases, he wrote.
On April 29, BMO Capital Markets analyst John McNulty touted Ashland's "cheap valuation for a multiyear growth story" and growing product pipeline. He has a 129 target and outperform rating.
In the March fiscal second quarter, Ashland grew sales 19% to $604 million. EBITDA rose 41% and adjusted EPS swelled 79%.
"A record number of planet-positive new product introductions in the first and second fiscal quarters reinforce our innovation-driven growth strategy," CEO Guillermo Novo said in the earnings statement.
Ashland Stock
Ashland stock jumped 4% to 105.76 in Thursday's stock market action. A day earlier, shares reclaimed their 50-day moving average.
With Thursday's move, Ashland stock broke the down-sloping trendline that connects its April 20 high of 111.05 and the peak of subsequent rally attempts in late April and early May. That action makes ASH actionable.
Ashland's relative strength line, the blue line in IBD charts that tracks a stock's performance vs. the S&P 500, is hitting a new multiyear high. That provides confirmation of Ashland's leadership.
Ashland is still about 9% below its official 111.15 buy point. Although Ashland stock hit a new high on April 20, it has essentially been consolidating since last November.
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