Here's Why You Should Hold Onto Ingevity (NGVT) Stock Now

Ingevity Corporation NGVT is poised to benefit from the acquisition of the Capa caprolactone business and growth in applications driven by regulations and technology adoption amid certain challenges including softness in industrial specialties and oilfield applications.

Shares of this specialty chemicals and materials maker are down 68.1% over the past year, compared with the 26.2% decline of its industry.

 

Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

What’s Woking in NGVT’s Favor?

Ingevity is seeing strong momentum in its Performance Materials division as reflected by a roughly 22% increase in sales and 26% growth in segment EBITDA in 2019. The company is benefiting from strong demand for technologies (including honeycomb) designed to meet U.S. EPA and California Tier 3 LEV III regulations. Stricter regulations for automotive gasoline vapor emissions in North America should continue to drive sales of the company’s solutions in the automotive industry. The company remains focused on offering innovative solutions to meet regulatory requirements.

Ingevity is also poised to benefit from the country-wide adoption of China’s new gasoline emissions standards, the China 6 national standard. The company should gain from the expected activated carbon demand growth based on the anticipated full transition by automakers in the country to the China 6 standard by mid-year 2020.

Moreover, the acquisition of the Capa caprolactone business contributed to the growth of the company’s revenues and earnings in 2019. Capa has a strong and market-leading business that focuses on high-growth end-use applications. The buyout has also enabled the company with a new technology platform to drive revenue and earnings growth. The addition of the engineered polymers product line through this acquisition is driving sales in the company’s Performance Chemicals division. The company expects the acquired business to deliver strong growth in 2020.

The company is also seeing strong growth in pavement technologies on the back of strength in North America. It expects mid-single digits growth in 2020 driven by growth in North America, adoption of Evotherm warm-mix technology and global expansion.

A Few Worries

Ingevity is seeing weakness in industrial applications. In the last reported quarter, the company’s Performance Chemicals unit was affected by slowdown in industrial activities. Soft market conditions, particularly in Europe and Asia, affected the segment in the quarter. The company witnessed a roughly 19% decline in sales related to industrial specialties applications in the quarter, hurt by weaker demand for printing inks. It sees continued pressure in industrial specialties in 2020.

The company also faces headwind from lower sales to oilfield customers. Sales to oilfield customers declined around 18% year over year in the last reported quarter, hurt by lower drilling activities in North America. Sales also dipped around 3% for full-year 2019. Ingevity sees continued weakness in oilfield applications in 2020 and expects mid-to-high single digits decline this year.

Ingevity is also exposed to cost pressures. The company saw higher legal expenses in 2019 in the Performance Materials unit related to intellectual property. It also sees legal costs to remain high in 2020. Moreover, the company expects headwind associated with raw material cost inflation in its Performance Chemicals unit in 2020.

Ingevity Corporation Price and Consensus

 

Ingevity Corporation Price and Consensus

Ingevity Corporation price-consensus-chart | Ingevity Corporation Quote

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space are Newmont Corporation NEM, NovaGold Resources Inc. NG and Franco-Nevada Corporation FNV.

Newmont has an expected earnings growth rate of 91.7% for 2020. The company’s shares have gained roughly 30% in the past year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently carries a Zacks Rank #1. The company’s shares have surged roughly 85% in a year.

Franco-Nevada has a projected earnings growth rate of 22% for 2020. The company’s shares have rallied around 38% in a year. It currently has a Zacks Rank #2 (Buy).

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Newmont Goldcorp Corporation (NEM) : Free Stock Analysis Report
 
Franco-Nevada Corporation (FNV) : Free Stock Analysis Report
 
Novagold Resources Inc. (NG) : Free Stock Analysis Report
 
Ingevity Corporation (NGVT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research