Innospec manufactures and supplies a wide range of specialty chemicals worldwide. The Fuel Specialties business specializes in manufacturing and supplying the fuel additives that help improve fuel efficiency, boost engine performance and reduce harmful emissions. This business also contains Oilfield Specialties which provides specialty chemicals for oil & gas drilling and production operations. The Performance Chemicals business provides solutions for processes or products focused in the Personal Care and Polymers markets. The company was founded in 1938 and is based in Englewood, Colorado.
IOSP Price Forecast Based on DCF Valuation
DCF Fair Value Target:
We started the process of determining a valid price forecast for Innospec Inc with a discounted cash flow analysis -- the results of which can be found in the table below. To summarize, we found that Innospec Inc ranked in the 32th percentile in terms of potential gain offered. We should note, though, that all scenearios modelled for this stock suggest it is overvalued. As for the metrics that stood out in our discounted cash flow analysis of Innospec Inc, consider:
Interest coverage, a measure of earnings relative to interest payments, is 23.34 -- which is good for besting 89.31% of its peer stocks (US stocks in the Basic Materials sector with positive cash flow).
The business' balance sheet suggests that 4% of the company's capital is sourced from debt; this is greater than just 13.78% of the free cash flow producing stocks we're observing.
IOSP's estimated cost of debt, based largely on its market capitalization and its interest coverage ratio, is 2%; for context, that number is higher than 44.87% of tickers in our DCF set.
Terminal Growth Rate in Free Cash Flow
Return Relative to Current Share Price
Want more companies with a valuation profile/forecast similar to that of Innospec Inc? See USLM, FSI, NEU, IFF, and LYB.
It's been a while since I've written on Innospec (IOSP), a high-quality small specialty chemical company that I previously thought looked a little too pricey when specialty chemical companies were still popular. COVID-19 came along, though, and delivered some significant blows to the business, as oil and fuel demand plunged...
Stephen Simpson, CFA on Seeking Alpha | August 27, 2020