If you read that Element Solutions (ESI) is a chemicals company, you might miss the fact that it’s also a supplier to the chip, energy, smartphone, printing, 5G and electric-vehicle industries, plus others. That’s how it’s become a top growth stock and today’s IBD 50 Stock To Watch.
“The markets we participate in are niche markets,” CEO Benjamin Gliklich said at a Goldman Sachs conference in May. “By and large, the shared attributes of our portfolio are businesses that are incredibly sticky by virtue of the technical service and innovation resident in our products and solutions.”
Its Industrial & Specialty segment focuses on industrial applications. Think autos, building products and printing applications. The larger Electronics business supplies materials for the electronics industry, where strong growth trends such as 5G communications and electric vehicles are in place, the CEO said.
Element Solutions is what IBD calls a cousin stock. As a supplier to a fast-growing company, it too becomes a growth stock by piggybacking on its customers’ good fortunes.
Growth Stock In Bullish Chart Pattern
The stock has been behaving calmly. After hitting a six-year high in June, the growth stock glided to its 10-week moving average. And it is finding support there. That creates a buy zone, although Element Solutions is also on track to form a flat base with a 24.80 buy point.
Element Solutions will release its second-quarter results after the market close on July 28. Analysts expect the company to earn 34 cents a share, an increase of 89% from a year ago. FactSet shows sales should rise 40% to $542.4 million.
By main business segments, Wall Street expects the electronics division to notch $340 million in sales and the industrial and specialty business $182 million. The consensus estimate for Q2 cash flow per share is 31 cents vs. 22 cents a year ago, according to FactSet. Q2 return on equity should come in at 12.1% from 9.4% a year ago.
Industrial Recovery, EVs Boost Company
When it reported Q1 earnings on April 28, the company raised full-year adjusted EPS guidance to at least $1.30. However, management did not give a revenue forecast. Analysts’ consensus EPS estimate is $1.36.
In a Q1 presentation, Element Solutions said an industrial recovery in Asia and the Americas, growth with EV customers and continued strength in electronics end markets resulted in a 27% increase in assembly sales. The semiconductor and circuitry divisions’ sales both rose 11% thanks to solid demand for wafer plating chemistries from mobile, auto and telecom markets.
Meanwhile, the graphics business saw a 12% decline in sales in a tough year-ago comparison. In 2020, the unit was busy with pandemic-related stock-up for consumer packaged goods. This year, supply chain disruptions hurt results. The energy division’s sales dropped 19%. Drilling activity, the company said, lagged rising energy prices.
Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia
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