Speciality materials producer Rohm & Haas (ROH) fell 5.4% on Friday. Much of the decline was due to downgrades in the stock by JPMorgan and UBS. This was an instance of “buy the rumor and sell the fact.” Even though this company had an increase in earnings, sales and revenue it was not enough to satiate the appetite of investors and brokers. Concerns related to higher commodity prices are affecting the outlook for future profitability.
ROH has had a 27-year track record for consecutive dividend increases at 7.29% compounded annual rate. Morningstar estimates fair value for ROH at $44.00 per share with a buy price of $33 per share. Valueline indicates that ROH is undervalued when the price is 11x cashflow or below. Full year 2004 cashflow was $4.30 and estimated 2005 cashflow was $5.05. This implies a $47.30-$55.55 range for undervaluation. Unfortunately, ROH hasn't traded above 11x cashflow since 2002 and has typically fallen in price once achieving the 11x cashflow mark. 1999 and 1993 were the other times that ROH has hit 11x cashflow. This might be used to as an indication of when to sell.
Biggest percentage gainer of the day: Commerce Group
Insurer Commerce Group (CGI) was up 11% on better than expected earnings. The company beat expectations by $0.32 per share. Prior to this most recent rise the stock was registering new 52-week lows on a daily basis. According to Morningstar, the company's price-to-book value range in the last 10 years has been as high as 1.8x and as low as 1.2x. If this company has reversed it's fortunes then the potential upside could take the stock price up to $67.38 based on book value of $37.43.
Commerce Group has increased its dividend every year for the last ten years in a row. What is exceptional about the dividend increase, but not expected to last, is the compounded rate of increase. CGI has had a 24.20% compounded growth rate of their dividend. Amazing!
