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5 Reasons to Add KMG Chemicals (KMG) Stock to Your Portfolio


KMG ChemicalsKMG stock looks promising at the moment. The chemical maker, currently carrying a Zacks Rank #1 (Strong Buy), has seen its shares pop around 33% year to date. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.

What Makes KMG an Attractive Pick?

Strong Q3 and Upbeat Outlook: KMG Chemicals reported its results for third-quarter fiscal 2017 (ended Apr 30, 2017) last Friday. Its adjusted earnings of 53 cents per share for the quarter climbed 29% year over year and topped the Zacks Consensus Estimate of 47 cents. Revenues went up 9% year over year to $81.6 million and also came ahead of the Zacks Consensus Estimate of $79.8 million. The company gained from growth across its electronic chemicals and performance materials units in the quarter.

KMG Chemicals, in its third-quarter call, said that it now anticipates earnings before interest, tax, depreciation and amortization (EBITDA) for fiscal 2017 to be at the high end of its earlier announced guidance range of $51−$53 million.

KMG Chemicals is well-placed to gain from acquisitions. The company acquired Sealweld, a premier supplier of high-performance products and services, in Jan 2017. The acquisition, which is in sync with the company’s growth policies, strengthens its industrial lubricants business. Contributions from the acquisition supported the company’s results in the fiscal third quarter.

The company, in Apr 2017, also agreed to acquire Flowchem, a leading global provider of drag-reducing agents, for $495 million in cash. The buyout will expand KMG’s capabilities in the growing market for pipeline performance products and services and will also establish it as the leading global supplier of drag-reducing agents. The company expects the acquisition to be highly accretive to its EBITDA and adjusted earnings per share.

An Outperformer: KMG Chemicals has significantly outperformed the Zacks categorized Chemical-Specialty industry over the past one year. The company’s shares have rallied around 102.9% over this period, compared with roughly 8.3% gain recorded by the industry.

Estimates Northbound: Annual estimates for KMG have moved north over the past 60 days, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2017 has increased by around 2% to $2.07 per share. The Zacks Consensus Estimate for 2018 has also moved up 21.6% over the same timeframe to $2.70.

Positive Earnings Surprise History: KMG Chemicals has an impressive earnings surprise history. The company has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering a positive average earnings surprise of 12.54%.

Healthy Growth Prospects: The Zacks Consensus Estimate for earnings for KMG for fiscal 2017 is currently pegged at $2.07, reflecting an expected year-over-year growth of 28.3%. Moreover, earnings are expected to register a 30.5% growth in fiscal 2018.

KMG Chemicals, Inc. Price and Consensus

KMG Chemicals, Inc. Price and Consensus | KMG Chemicals, Inc. Quote

Other Stocks to Consider

Other top-ranked stocks in the chemical space include Huntsman Corporation HUN, BASF SE BASFY and The Chemours Company CC, all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntsman has an expected long-term earnings growth of 7%.

BASF has an expected long-term earnings growth of 8.9%.

Chemours has an expected long-term earnings growth of 15.5%.

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