Ferro Corp (NYSE:FOE)

CAPS Rating: 3 out of 5

The Company produces performance materials for a range of manufacturers in diversified industries throughout the world.

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Player Avatar NetscribeBasMtrl (23.38) Submitted: 12/29/2006 1:01:42 AM : Underperform Start Price: $19.44 FOE Score: +74.39

All is not well with, Ferro Corporation (FOE), a leading global producer of a diverse array of performance materials sold to a broad range of manufacturers covering 30 markets throughout the world. Primary markets include building and renovation, appliances, household furnishings, transportation, industrial goods, packaging, and leisure products. With the Wind Point Partners backing out of Ferro’s proposal to divest its specialty plastics business, the company still intends to do away with the same segment and is aggressively working on restructuring of its inorganic businesses.

With building and renovation markets representing around 30% of FOE's sales, followed by household furnishing contributing a rough 10%, an economic slowdown as anticipated, translates limited growth opportunities for the company in near future. Likewise, rising natural gas prices, supported by recent surge in cobalt prices, which ultimately renders to higher raw material costs, put a constraint on higher operating margins.

Amid a poor financial performance in the recent concluded quarter, with earnings down by around 20%, the forthcoming quarters envisages slowed production-related markets and enhanced competition leading to irrational pricing pressure. While FOE has initiated an aggressive restructuring program primarily targeting inorganic specialties, the initiatives are targeted to be completed in 2008 with the $10 million targeted savings expected only in the long run.

The stock price has observed a sharp bull run since July this year, which may not be sustainable in near future. Likewise, its high P/E multiple against industry’s and a high debt component in the balance sheet, makes it a vulnerable scrip to trade.

Member Avatar kwphysics (< 20) Submitted: 1/14/2007 2:28:39 PM
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You make a bold call, against everyone on wallstreet and CAPS, then support it with a beautiful pitch. I commend you.

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