BASF Makes A Portfolio Better

7/25/2011


  Recent Price
$95
  Dividend
$3.16 e
  Yield
3.3% e
  P/E Ratio
11
  Shares (millions)
918
  Long-Term Debt as % of Capital
33%
  52-Week Price Range
$102.68 - $52.25
  e Estimated.

BASF ($95; BASFY) makes chemicals found in detergent, paint, and pharmaceuticals. Its fertilizers help crops grow; its pipelines transport natural gas; and its foams improve the energy efficiency of refrigerators. BASF’s strength in Quadrix is similarly broad, with scores above 80 in five of six categories and an Overall rank of 99.

The shares have rallied 18% so far in 2011, reflecting the company’s operating momentum. Sales advanced 23% in the six months ended March, while operating profit margins widened and cash from operations jumped 83%. BASF expects “significantly” higher revenue and operating income for full-year 2011. In the wake of a rival’s warning, the company reiterated that confidence in June, hoping to ease concerns about a downturn in the chemical sector. The consensus projects profit growth of 2% this year and 19% next year.

Shares trade at 11 times trailing earnings, a 27% discount to their three-year average of 15. If BASF meets consensus expectations and the P/E expands to 13, the shares would reach $125 by early 2013.

BASF trades on the Pink Sheets, an over-the-counter market better known for penny stocks. But BASF is one of Germany’s largest companies, with an $88 billion market capitalization and more than 145 years of history. BASF’s size and solid fundamentals help earn it a Long-Term Buy rating.

Business breakdown

In the March quarter, all of BASF’s segments reported at least 7% year-to-year growth in both revenue and operating income:

• Performance products (21% of 2010 sales, 19% of operating income) got a boost from BASF’s $3.8 billion acquisition of Cognis last year. BASF sees the deal vaulting it to the top of the market for personal-care ingredients. The unit also sells lubricants, adhesives, and food ingredients.

• Chemicals (20%, 33%) makes glues, solvents, and compounds essential to the semiconductor and solar-cell industries.

• Oil and gas (19%, 13%) doesn’t expect to restart crude-oil production in Libya this year, but BASF is still the largest German energy producer.

• Plastics (17%, 18%) sells engineering plastics used by the automotive and electrical industries. BASF’s soft foams fill car seats and mattresses.

• Functional solutions (17%, 6%) produces catalysts and coatings for the automotive and construction industries.

• Agricultural solutions (7%, 11%) shields crops from diseases, insects, and weeds.

By 2015 BASF expects new products (less than five years old) to contribute more than $11 billion in revenue, up from $8.5 billion last year. Initiatives include ecologically efficient diapers, crops more resistant to droughts, and materials for more efficient electric-car batteries.

BASF is also active on the acquisitions front, partly to cut its exposure to the volatile chemical industry. In March, BASF said it would pay $2.8 billion for a 15% stake in a Russian natural-gas pipeline, a move that could help it access markets in southeastern Europe. BASF plans to sell its fertilizers business. An annual report for BASF SE is available at (973) 245-6000; www.basf.com.

BASF
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '11
3.69
vs.
1.55
+ 31%
86.75
-
73.77
13 - 11
Dec '10
1.61
vs.
0.72
+ 13%
81.91
-
63.62
14 - 11
Sep '10
1.75
vs.
0.37
+ 26%
63.48
-
52.25
15 - 12
Jun '10
1.64
vs.
0.51
- 2%
64.78
-
49.76
21 - 16
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
85.43
6.65
2.30
81.91
-
49.76
12 - 7
2009
43.34
2.22
2.53
63.73
-
26.06
29 - 12
2008
87.47
4.36
3.04
76.72
-
25.28
18 - 6
2007
85.37
6.08
2.00
74.45
-
46.23
12 - 8
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
93
84
88
56
84
87

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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