Wednesday, May 06, 2009

NewMarket (NYSE:NEU): Downgrade to Hold at Keybanc

Keybanc again, this time downgrading NewMarket (NYSE:NEU) to Hold from Buy

Firm notes that April 27, 2009 they increased their former price target to $70 as they believed
NewMarket Corporation (NEU-NYSE) shares would continue to outperform the overall market; since then NEU shares have risen another 14% vs. a 5% increase in the S&P 500 over the same period. NEU shares closed at $66.54, which is 5% from former price target and they now expect NEU shares to perform in line with the overall market going forward;

Management has done an exceptional job in capitalizing on the current environment and expanding margins despite volumes falling sharply. The price/cost benefits from lower raw materials and the lag in price adjustments in petroleum additives more than offset headwinds with lower volumes, unfavorable foreign exchange and higher pension costs. Although it should be noted that the Company had a $1.1 million ($0.05 per share) benefit from LIFO liquidation in 1Q09, Keybanc had previously believed that the Company was impacted by LIFO charges. They do not expect any LIFO charges (or benefits) in 2Q09 as inventories will likely begin to increase as demand rises.

In 2010 they anticipate a recovery in volumes (+7%) coupled with modestly higher raw material costs (+2.4%) and lower average selling prices (-1%) vs. 2009.

The Foundry Park financing issues need to be resolved by August 2010 by the construction loan due date; however, until a permanent resolution is put into place they anticipate that this could be an overhang on the stock.

Based on both 2009 and 2010 earnings estimates, NEU shares are fairly valued at this time and reflect the favorable environment in which they currently compete, in firm's opinion.

Notablecalls: The thing with this one is that while it's a mere valuation call, Keybanc is clearly the axe in the name. They have had a huge run with this one and now are telling clients to cash in.

The clients will cash in their chips and that will bring us opportunity on the short side.

I guessing 2+ pts downside, provided the market doesn't go bananas.

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