Earnings, dividend and buyback update shape NewMarket’s latest move

NewMarket (NEU) has put several key pieces on the table at once by reporting first quarter results, declaring a US$3.00 per share dividend, and updating investors on recent share repurchases.

Those earnings, dividend and buyback updates come after a mixed stretch in the stock, with a 1 month share price return of 8.14% and a 90 day share price return of 4.11%. The 5 year total shareholder return of 118.57% points to stronger long term compounding.

If you are comparing NewMarket with other opportunities in the materials and industrial value chain, this could be a good moment to scan 8 top copper producer stocks

With earnings a little softer year on year, alongside a US$3.00 dividend and a completed buyback in play, is NewMarket quietly trading below its intrinsic value, or is the stock already reflecting future growth expectations?

Preferred P/E of 15.5x: Is it justified?

At a last close of $687.65, NewMarket is trading on a P/E of 15.5x, which screens as inexpensive compared with both its peers and the broader US Chemicals industry.

The P/E multiple compares the current share price to earnings per share, so it effectively tells you how much the market is willing to pay for each dollar of current earnings. For a business focused on petroleum additives with a long operating history and global footprint, this measure gives a simple way to weigh today’s price against current profitability.

NewMarket has had 16.7% earnings growth per year over the past 5 years, high quality earnings, and a return on equity of 23.7%. Set against that backdrop, a P/E of 15.5x that sits below both a peer average of 26.2x and a US Chemicals industry average of 29.3x indicates that the market is pricing the stock at a discount to many comparable companies despite its profitability record.

Result: Price-to-Earnings of 15.5x

However, the story can shift if demand for petroleum additives softens or if the intrinsic discount of 49.23% reflects risks the market understands better than you do.

Another angle from the SWS DCF model

While the P/E of 15.5x suggests NewMarket is cheap next to peers, the SWS DCF model goes further by putting future cash flow value at $1,354.55 per share versus the recent $687.65 price. That points to a stock trading at a wide discount, but is the gap justified?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out NewMarket for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals across valuation, earnings and shareholder returns, how does this all stack up for you as an investor, and are you comfortable with the balance between potential upside and the risks on the table? To get a clear view of both the concerns and the optimism currently shaping sentiment around NewMarket, take a closer look at the 2 key rewards and 1 important warning sign

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.