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Is Ashland Overvalued Compared to Its Peers?

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May. 31 2018, Updated 9:31 a.m. ET

Ashland’s one-year forward PE multiple

As of May 25, Ashland (ASH) was trading at a one-year-forward PE multiple of 21.1x. In comparison, its peer Celanese (CE) was trading at a one-year forward PE multiple of 11.9x.

Forward PE is one of the valuation methods that factor in a company’s future earnings estimations. It helps investors compare two or more companies operating in the same industry to assess which company is undervalued and which is overvalued.

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Is Ashland overvalued?

Ashland saw strong fiscal second-quarter earnings. It reported adjusted EPS of $1.06. Banking on higher revenue, along with a possible buyback of shares and plans to reduce its selling, general, and administrative expenses by $120 million related to its Corporate and Specialty Ingredients segment, ASH expects its fiscal 2018 EPS to be in the range of $3.30–$3.50.

In the next four quarters, analysts expect ASH’s adjusted EPS to be $3.70, an increase of 19.7% on a year-over-year basis. Analysts expect CE’s adjusted EPS to rise 9.2%, indicating that ASH’s adjusted EPS growth is expected to be more than double CE’s. Hence, ASH is trading at a premium and is in line with its adjusted EPS growth rate.

Investors can indirectly hold Ashland by investing in the iShares Edge MSCI Min Vol USA Small-Cap ETF (SMMV), which has invested 0.4% of its portfolio in Ashland as of May 25. The fund also provides exposure to Brown & Brown (BRO) and Steris (STE) at weights of 0.7% each.

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