Amcol International Corporation (ACO) recently reported better than expected first quarter results as solid sales growth, coupled with margin expansion, led to a whopping 90% increase in EPS year-over-year.
Analysts revised their estimates significantly higher for both 2011 and 2012 off the strong quarter, sending the stock to a Zacks #2 Rank (Buy). Based on consensus estimates, Amcol is expected to grow EPS by 32% in 2011 and 23% in 2012.
In addition, the company pays a dividend that yields an attractive 2.1%.
Company Description
Amcol International develops and markets a wide range of mineral and technology based products which are used in various industrial, environmental and consumer applications. The company reports revenue in the following 4 segments:
Minerals & Materials (51% of total revenue)
Environmental (24%)
Oilfield Services (19%)
Transportation (6%)
First Quarter Results
Amcol reported strong financial results for the first quarter of 2011. Earnings per share came in at 38 cents, crushing the Zacks Consensus Estimate of 23 cents. It was a 90% increase over the same quarter in 2010.
Net sales rose 27.1% to $222.4 million in the quarter, well ahead of the Zacks Consensus Estimate of $206.0 million. The Minerals & Materials segment saw top-line growth of 19.6%, which was driven by a strong automotive market in both Asia and North America. The Environmental division was up 44.9%, while Oilfield Services segment revenue improved 48.1%.
The company saw strong margin improvement in the quarter as well, which helped drive profitability. Gross profit increased from 25.5% of revenue to 26.1%. Meanwhile, the operating margin improved from 6.2% of revenue to 8.3% as the company leveraged its selling, general and administrative expenses.
Outlook
Analysts revised their estimates significantly higher for both 2011 and 2012 off the strong quarter, sending the stock to a Zacks #2 Rank (Buy). The 2011 Zacks Consensus Estimate is $2.07, representing 32% growth over 2010 EPS. The 2012 consensus estimate is currently $2.56, corresponding with 23% EPS growth.
Management did not provide specific guidance for the full year 2011 but stated in the Q1 press release that “[t]he outlook for the major business units within each segment appears favorable.”
Amcol has delivered 6 positive earnings surprises in the last 7 quarters. Over the last 4 quarters, the company has posted an average upside surprise of 21%.
Dividend
Amcol pays a dividend that yields a solid 2.1%. The company aggressively raised it over the first part of the decade, but hasn’t had a hike since 2008.
The company’s payout ratio is 42%, which leaves plenty of room for additional dividend increases, especially if the earnings growth projections materialize.
Amcol trades at 15.2x 12-month forward earnings, a discount to its 10-year median of 15.7x. Its price to sales ratio of 1.2 is well below the industry average of 4.4.
Conclusion
Solid revenue growth and expanding margins are driving profitability significantly higher for Amcol. This is sending earnings estimates higher too. Throw in a 2.1% dividend yield and reasonable valuation, and this Zacks #2 Rank (Buy) stock looks pretty attractive.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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