Spartech Corp (NYSE: SEH), Near High Potential Breakout Mode

Spartech Corp (NYSE: SEH), Near High Potential Breakout Mode

Spartech Corp (NYSE: SEH), Near High Potential Breakout Mode

Spartech Corp (NYSE: SEH), Near High Potential Breakout Mode

This week produced another period of strong US economic data, as optimism in the equity markets continues to grow precipitously. The January employment report was fairly in-line with expectations, while ISM manufacturing, construction spending and University of Michigan of confidence all exceeded expectations. Also, overseas there was encouraging data from China showing that the manufacturing sector is alive and well, as the gauge came in at 52.3 compared to consensus of 52.0. In the Euro zone, many countries in the region released their PMI numbers and the results were generally better than expected.

Spain’s January PMI was better than anticipated, as Markit said the headline print jumped to 46.1 from 44.6 last time – beating the consensus of 45.5. Although the index remains in contraction mode for the 21st straight month, the output component jumped to 46.2 from 44.2 in December, as firms tried to attract foreign investment. This was the slowest rate of decline since Jun 2011. Moreover, the survey compiler pointed out that higher exports are helping, though recent gains are still not enough to support a wider expansion as the economy remains beset by battered business and consumer sentiment. Other notable PMIs, Germany handily beat consensus (49.8 actual vs. 48.8 consensus). France came in line with expectations of 42.9. Italy beat the consensus of 47.4 with an actual reading of 47.8.

With the macroeconomic picture in-tact so far this year, investors can focus back on individual companies. The concern about debt and instability will be around presumably for decades, however, the market is calm right now and folks can zero-in on individual stories. With the housing market as the anchor of the US economy, and the Federal Reserve pumping $40bln of mortgage-backed securities into the market, any company associated with this sector should benefit. When looking at the construction industry and providers of materials, Spartech is a nice play for those investors who believe in the housing recovery.

Spartech Corp (NYSE: SEH) is a producer of plastic products, which includes polymeric compounds and packaging technologies for a variety of customers. The company was recently awarded the strategic supplier award for 2012 by Brentwood Industries Specialty Products Group. Earlier this year, the company announced that its Royalite G50 and Ultros Renu 90 products received certification from scientific certification systems. The aforementioned products are used in construction. With approved certification, Spartech’s products will allow folks an opportunity to earn credits toward the U.S. Green Building Council’s LEED Green Building Rating System.

The stock is currently trading at $9.66, close to its 52-week high of $9.95 reached on January 4th of this year (the 52-week low is $3.54). Technically, the stock appears to be in breakout mode as the price is constantly making higher lows and highs. In December of last year the company reported earnings that were double the consensus of $0.07 EPS. The next earnings announcement is scheduled for March 14th. The company beats earnings expectations about 40% of the time.

Some of the company’s biggest competitors include Yantai Wanhua Polyuretahnes (market cap $5.75bln, based in China) and Carlisle Companies (NYSE: CSL) (market cap $4.08bln). Some smaller competitors in the industry include Taiflex Scientific (market cap $250mm), Elite Material (market cap $304mm).

Spartech was recently acquired Polyone, who is currently targeting double digit expansion of adjusted EPS. With the housing market in a slow but steady recovery, SEH is a nice derivative play off the industry. 


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4 Responses

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  1. Lillie
    Feb 06, 2013 - 08:34 AM

    Looks interesting. So many businesses are affected by the housing market in one way or another. I like the entry point right now. Will watch this one. Thanks.

  2. Matt Rego
    Feb 06, 2013 - 05:43 PM

    Interesting no doubt with nice upside earnings calls but I do have a worry in the short term…SEH has about .13 debt to equity that will be paid off within a year. Currently, the balance sheet shows the company only has .04 cash per share. This makes me question the financial stability of the company in the short term.

  3. sarah
    Feb 15, 2013 - 11:36 PM

    Looks very interesting, good selection of topic..

  4. Tyokunbo Abiola
    Feb 16, 2013 - 08:43 AM

    I agree with Mrego. The existence of debt and the cash per share make for some worry.


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