Business Accelerates At Avient
There is something going on in the industrial world that no one is talking about. While the media focuses on the pandemic the U.S. consumer has wiped the store shelves clean. And I don’t just mean toilet paper and Clorox (NYSE:CLX) wipes. What I am talking about is the shift to home, home life, and a return to outdoor lifestyles and activities. Those trends were sparked by the pandemic but will long outlast it but I digress.
The point I am trying to make is that inventories across most categories of consumer goods from food to fish finders is down double-digits over last year. If not that then backlogs for items are up high-double to triple-digits and both point to an increase in manufacturing. An increase in manufacturing is driving a need for materials and in many cases that means resins, additives, and colors for all those bits of plastic and polymer technology we use every day. And that is where Avient (NASDAQ:AVNT) comes into the picture.
Avient Cautiously Optimistic, And Then Raised The Guidance
Avient had a great 3rd quarter and provided solid guidance for the 4th. The company reported a 31.2% increase in YOY revenue that put an end to 6 consecutive quarters of revenue decline. Revenue declines were due to underperforming business that, it happens, were divested just before or during the early stages of the pandemic. Now, the company is a more specialized version of itself with demand on the rise.
In regards to operations the company has three segments the 1) make colors, additives and inks 2) manufactures specialty polymer compounds for business and industry and 3) distributes over 4,000 highly specialized polymer resin compounds. On a quarter to quarter basis, revenue increased by 52% and led the company to offer positive, if conservative, guidance for the end of the year.
"As we start the fourth quarter, we see demand continuing to improve but recognize there remains uncertainty with how the ongoing pandemic recovery will unfold," Mr. Patterson said. "We remain committed to keeping health and safety first, providing world-class service to our customers, and utilizing our unique position to help the ongoing recovery efforts taking place around the world."
Avient raised its guidance just a month after issuing the Q3 report. The company says strength in all categories is driving top-line performance and helping to leverage profits. Execs are now predicting EPS of $.48 versus the $0.40 offered in November. The balance sheet is looking better than ever as well. Proceeds from business are being used to pay down debt, buy back shares, and prepare for “bolt on” acquisitions. They expect the leverage ratio to fall to 2.8X EBTIDA by the end of the year with cash reserves in excess of $600 million. As for buybacks, the board approved another $5 million
Avient Is A Dividend-Grower, Too
In addition to business and balance sheet strength, Avient is a dividend-growth stock as well. The stock yields about 2.2% at recent shares prices with an expectation for moderate growth over the coming years. The payout ratio is running about 51.5% of the consensus EPS estimate (47% the company’s guidance) with that falling below 45% next year so there is plenty of cash-flow to be tapped into. The company just made its 9th increase this month so it will be a year before the next one is due. That said, the 18% CAGR and balance sheet suggest it could be a big one.
On a technical basis, Avient is in a strong uptrend but there is a caveat. The stock is trading about 6% above the short-term 30-day EMA with bearish indicators. I don’t think we’re going to see a correction but a pull-back is due. A move to retest and confirm the EMA or other support would be a trigger to start nibbling on this stock.
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