KeyBanc reiterates ‘hold’ rating on Ashland

26 November 2008 19:42  [Source: ICIS news]

NEW YORK (ICIS news)--KeyBanc Capital Markets reiterated its “hold” rating on US-based Ashland on Wednesday amid a severe decline in the company's stock price. 

 

The bank cited integration challenges the US specialty chemicals producer and distributor faces from its $2.6bn (€2.0bn) acquisition of Hercules.

 

“We are reiterating our ‘hold’ rating despite attractive valuation levels, as we sense Ashland will have its hands full integrating a large acquisition in a deteriorating economic environment,” said chemical analyst Michael Sison in a research note.

 

Shares of Ashland have taken a huge hit in recent weeks.

 

The stock fell by 44 cents, or 4.9%, to a new 52-week low of $8.48 in late Wednesday morning trading. The stock is down by 86% from its 52-week high of $58.58.

 

Sison estimated Ashland’s earnings per share (EPS) would fall from $2.30 in fiscal 2008, ended 30 September, to $1.75 in fiscal 2009.

 

“If integrated effectively, we sense Hercules can bring greater growth potential and improved earnings stability over the long term,” Sison said.

 

“However, the company will be burdened by significantly increased debt levels in the near term,” he added.

 

After the acquisition of Hercules, completed in November, Ashland has about $2.6bn in debt for a debt/capital ratio of around 40%, said Sison.

 

“We expect the integration will be challenging, particularly considering the deteriorating economic environment,” he added.

 

Sison expected roughly $40m-50m in acquisition-related cost savings in fiscal 2009.

 

On 20 November, Ashland cut its quarterly dividend to 7.5 cents/share from its previous level of 27.5 cents, to “create additional financial flexibility,” according to its chairman and CEO James O’Brien.

 

“We suspect recent actions, including moves to cut the dividend and reduce capital spending, are geared toward preserving liquidity and bolstering financial flexibility in a weak operating environment,” said Sison.

 

($1 = €0.77)

 

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By: Joseph Chang
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