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Taking Stock of W.R. Grace's Leverage Situation after 2Q17

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Part 4
Taking Stock of W.R. Grace's Leverage Situation after 2Q17 PART 4 OF 5

Why W.R. Grace Is Trading at a Premium Compared to Its Premium?

W.R. Grace’s forward PE

After looking at analysts’ views and recommendations for W.R. Grace (GRA), let’s look now at GRA’s valuations. As of September 21, 2017, GRA’s one-year forward PE (price-to-earnings) multiple was 20.25x. Its peer Huntsman (HUN) has a one-year forward PE multiple of 12.20x.

Why W.R. Grace Is Trading at a Premium Compared to Its Premium?

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Forward PE is a valuation method that considers future earnings. It helps investors compare two or more companies operating in the same industry. It also helps them see which company is overvalued and which one is undervalued.

W.R. Grace trades at a premium to its peer

Currently, W.R. Grace is trading at a premium to its peer Huntsman since GRA reported better-than-expected 2Q17 earnings and maintained its guidance for fiscal 2017. Analysts estimate that GRA’s adjusted EPS (earnings per share) will be $3.37, an 8.6% rise over fiscal 2016. Also, GRA acquired Evonik dental silica and the Huber defoamer product line, which is expected to be positive for its fiscal 2018 earnings. Analysts are projecting GRA’s fiscal 2018 adjusted EPS to be $3.68, a 9.1% rise over the expected EPS for fiscal 2017.

Analysts are projecting Huntsman’s EPS for fiscal 2018 to be $2.25, which is 3.1% less than the expected EPS of $2.32 in fiscal 2017. Since GRA’s EPS growth is higher than Huntsman’s, GRA is commanding a premium over HUN.

Investors looking to hold GRA indirectly can invest in the iShares US Basic Materials (IYM), which has invested 0.80% of its portfolio in GRA. The other holdings of the fund include Monsanto (MON) and Air Products & Chemicals (APD) with weights of 7.9% and 5.0%, respectively, as of September 22, 2017.

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