Ferro Corporation (FOE): Can a New Board Fix This Chemical Maker?

Another way to go

Alternatively, investors might want to consider an intriguing company that competes in the same chemical businesses but that also has exposure to construction and energy segments. Despite its current position in Chapter 11 proceedings due to legacy asbestos litigation, W.R. Grace & Co. (NYSE:GRA) has been quietly improving its core operations and building on its strengths in advanced chemical agents and engineered plastics. Grace’s substantial equity value in excess of its obligations is reflected in its stock price, which has more than tripled over the past five years.

In its latest fiscal year, W.R. Grace & Co. (NYSE:GRA) posted flat top-line results, but its adjusted operating income gained a solid 7.2%. The company’s profitability was aided by a rebound in the domestic housing market and related building product purchases, where Grace competes in the waterproofing membrane and cement additive product lines.

In addition, W.R. Grace & Co. (NYSE:GRA) has leveraged its operating footprint in 40 countries throughout the world to create efficiencies in its administrative overhead. Most importantly, the company’s higher levels of operating cash flow are finally supporting growth initiatives, including new plants in India and China.

Of course, investors need to remain cognizant of Grace’s ongoing court battles.  While the U.S. District Court has affirmed the company’s reorganization plan, plaintiff appeals are scheduled to be heard by the Third Circuit Court this month.  Regardless of the outcome, W.R. Grace & Co. (NYSE:GRA) is clearly in the final innings of the process.

The bottom line

On its own merits, Ferro is a weak investment story, although its prospects improve in a business combination with A. Schulman Inc (NASDAQ:SHLM). Absent a merger, though, Ferro Corporation (NYSE:FOE)’s new board should be able to create incremental value by refocusing the company in areas where it has scale and a competitive advantage. However, investors might want to wait for the dust to settle in this corporate drama and set their sights on the new and improved W.R. Grace & Co. (NYSE:GRA).

Robert Hanley owns shares of Ferro and W.R. Grace & Co. (NYSE:GRA). The Motley Fool has no position in any of the stocks mentioned.

The article Can a New Board Fix This Chemical Maker? originally appeared on Fool.com.

Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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