Other diversified chemicals companies include Eastman Chemical Company (NYSE:EMN), FMC Corp (NYSE:FMC), Celanese Corporation (NYSE:CE), and Braskem SA (ADR) (NYSE:BAK). These peers are valued between 9 and 13 times their forward earnings estimates, meaning that the pricing of Ashland Inc. (NYSE:ASH)’s stock is very much in line with the rest of the industry. Eastman and FMC each experienced a double-digit increase in revenue in their most recent quarter compared to the same period in the previous year, potentially indicating that those businesses are in better shape than Ashland (we would note, however, that their trailing P/Es are fairly high; they only pull in line with the other chemical companies through expected improvements in earnings). Braskem pays a decent dividend yield, but it is actually unprofitable on a trailing basis and so we would avoid it from a value perspective. Celanese’s sales slipped a bit in its last quarterly report compared to the fourth quarter of 2011, though the stock is cheap enough that it might be fairly valued if the company can sustain its current performance.
Of course, we imagine that part of JANA’s investment thesis will involve some sort of special situation- the fund has bought up a large stake in the company very quickly, and so may push for some kind of transaction or merely want Ashland to return more cash to shareholders (the company does have about $500 million in cash on its balance sheet, or about 1 turn of EBITDA). As a result comparisons to similar companies, while they do show that Ashland’s valuation is reasonable as things stand compared to its peers, might underestimate the upside that Rosenstein and his team are seeking here.
Disclosure: I own no shares of any stocks mentioned in this article.