LSB Industries, Inc. (NYSE:LXU)

CAPS Rating: 4 out of 5

A manufacturing, marketing and engineering company. Its business activities consist of the manufacture and sale of commercial and residential climate control products, chemical products for the mining, agricultural and industrial markets.

Recs

4
Player Avatar TMFOrangeblood (97.50) Submitted: 11/22/2011 4:00:33 PM : Outperform Start Price: $30.90 LXU Score: -34.53

Based on my 11/22/2011 Rising Stars buy: http://www.fool.com/investing/general/2011/11/22/why-im-buying-more-of-this-rising-star.aspx

Summary:

**Diversification
LSB has two main business units, chemical (63% of year-to-date revenue) and climate control (36%). Because they serve completely separate markets, bad results in one sector likely won't devastate the company. Indeed, while climate control has slowed down because of the housing and construction markets, the chemical unit has been firing on all cylinders lately.

**Business fundamentals and Mod-8
LSB has passed my Modified Foolish 8 screen for six months running, and it was the only company to pass it in two of those months. The Mod-8 combines elements of valuation with some tough business requirements, including better than 15% return on equity over the past four quarters, as well as each of the past three fiscal years. It's a tough requirement and is one indication of outstanding management.

The company has some nice competitive advantages with each unit. With a 38% share in the geothermal market, climate control is riding the tailwinds of the geothermal "green" movement. Plus, many buyers are eligible for tax breaks by going green. And with plants located near its customers, the chemical business benefits from location advantages that allow for lower freight and distribution costs.

**Unlocking value
An analyst mentioned on the last conference call that fertilizer-related master limited partnerships, or MLPs, are trading for attractive multiples lately. These include three on U.S. exchanges: Terra Nitrogen (NYSE: TNH ) , CVR Partners (NYSE: UAN ) , and Rentech Nitrogen Partners (NYSE: RNF ) . President and COO Barry Golsen says management is open to this type of structure for the chemical unit. If it happens, this would likely unlock some shareholder value, though for now the team is just keeping an eye on the market.

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