Zacks Investment Research downgraded Koppers Holdings Inc. (KOP) to a Zacks Rank #5 (Strong Sell) on Mar 25, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader market.
Why the Downgrade?
Koppers Holdings’ fourth-quarter 2013 results failed to impress investors as evidenced by the approximately 2.5% fall in the company’s share price on Feb 13. Adjusted earnings per share from continuing operations were 44 cents, down 33.3% year over year and roughly 29.0% below the Zacks Consensus Estimate of 62 cents.
Revenues generated in the quarter were $341.8 million, down 8.8% year over year. The top-line decline was due to an 11.8% fall in sales from the Carbon Materials and Chemicals division and a 3.3% decline in sales from the Railroad and Utility Products and Services Division. The impact of weak sales was partially offset by a slight fall in cost of sales that led to a 50 basis point fall in gross margin.
Koppers Holdings’ fourth-quarter 2013 results triggered downward revisions in earnings estimates. In the last 60 days, the Zacks Consensus Estimate has decreased 8.6% to $2.97 for 2014 and by 11.0% to $3.72 for 2015.
Lower-than-expected results coupled with downward revision in earnings estimates and a negative average earnings surprise of 6.52% have made us dubious about Koppers Holdings’ performance in 2014 and 2015. Currently, the company has an Earnings ESP of -0.67% and -0.54% for 2014 and 2015 respectively.
Other Stocks to Consider
Koppers Holdings is an $846 million company operating in the chemical-diversified industry. Some better-ranked stocks in the industry include Cytec Industries Inc. (NYSE:CYT), The Dow Chemical Company (NYSE:DOW) and Methanex Corporation (MEOH.O), all of which carry a Zacks Rank #2 (Buy).