NGVT Stock Study (5-25-23)

I recently did a stock study on Ingevity Corp. (NGVT) with a closing price of $51.04.

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 decade. 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). The stock started trading publicly in 2016. If I exclude ’13-’15, then historical sales and EPS growth are 9.8% and 22.8%, respectively.

PTPM has been 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%. ROE has been above peer and industry averages since ’16 [when this particular data stream begins], ranging from 18.0% in ’21 to 51.3% in ’18 with a last-5-year mean of 34.3%.

For this analyst, the overall debt load casts a yellow light. Debt-to-Capital has been persistently higher than peer and industry averages since ’16 with a last-5-year mean of 68.6%. Quick Ratio is 1.1 and Interest Coverage is 4.7. Value Line rates the company B+ for Financial Strength.

I forecast long-term sales growth of 3.0% based on the following:

• CNN Business projects 5.9% YOY and 11.8% for ’23 and ’22-’24, respectively (based on 7 analysts).
• YF projects YOY 9.5% and 4.9% for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 9.4% and 1.9% for ’23 and ’24, respectively (4).
• Value Line projects 4.0% annualized growth from ’22-’27.
• CFRA projects 9.5% YOY and 7.2% per year for ’23 and ’22-’24, respectively (7).
• M* offers a 2-year ACE of 8.8%.

I am forecasting below the long-term estimate.

I forecast long-term annualized EPS growth of 2.0% based on the following:

• CNN Business projects 8.2% YOY contraction and 4.6% per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with 5-year annualized growth of 1.0%.
• MarketWatch projects growth of 2.2% and 6.5% per year for ’22-’24 and ’22-’25, respectively (7 analysts).
• Nasdaq.com projects growth of 28.7% YOY and 19.1% per year for ’24 and ’23-’25, respectively (3, 4, and 2 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 5.5%.
• YF projects YOY 9.3% contraction and 20.9% growth for ’23 and ’24 (6) along with 5-year annualized growth of 6.2%.
• Zacks projects YOY 6.5% contraction and 26.0% growth for ’23 and ’24, respectively (4).
• Value Line projects 5.5% annualized growth from ’22-’27.
• CFRA projects growth of 0.5% YOY and 7.2% per year for ’23 and ’22-’24, respectively (6).

I am forecasting near the bottom of the long-term-estimate range (mean of four: 4.6%). My initial value is Q1 ’23 EPS of $5.28/share (annualized) rather than ’22 EPS of $5.50.

My Forecast High P/E is 19. Since ’17 (ignoring 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. I am forecasting conservatively by using the last-5-year-mean average P/E (only ’22 is lower).

My Forecast Low P/E is 6. Since ’16, low P/E has ranged from 5.7 in ’20 to 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) is the default value of $31.70. This is 37.9% less than the previous closing price and 35.8% less than the 52-week low.

These inputs land NGVT in the BUY zone with an U/D ratio of 3.1. Total Annualized Return (TAR) is 16.8%.

PAR (using Forecast Average—not High—P/E) is 7.1%, which 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 20 studies (my study and 6 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 6.8%, 7.4%, 19.0, and 12.2. My growth rates are substantially lower and my low P/E is ~50% less. Value Line’s projected average annual P/E of 20.0 is higher than MS (15.6) and higher than mine (12.5). MOS seems robust in this study.

With regard to EPS, MS high and low are $7.78/share and $5.31/share in contrast to my $5.83 and $5.28. My high EPS is lower due to forecast EPS growth rate.

MS LSPF of $49.40 implies a low P/E of 9.3 (vs. the above-stated 12.2), is 23.7% less than the $5.31 * 12.2 = $64.78 default, and is 55.8% greater than mine [stock down 42.4% over last three months]. Nine of the 20 studies are invalid at this time.

NGVT is a BUY under $51/share. I don’t love the debt load or visual inspection, but I feel like I used some bargain-basement inputs and still came out with an U/D over 3.0 and an outstanding TAR.