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Here’s a trivia question. What company begs for really horrible winters, with lots of blizzards, and has a name that makes you think it’s something it isn’t?
I’m talking about Compass Minerals International Inc. (NYSE: CMP). While insurance companies fear Mother Nature more than any other business, there is balance in the universe, as Compass probably does snow dances in its offices because of what it does.
Compass operates in two segments, the first of which is what I’m referring to. Its salt sdegment handles the entire chain of mining, producing, processing, distributing and marketing . . . salt.
That means all kinds of salt. As I learned with my BA in Chemistry, there are many kinds of salt. Compass has a huge division focusing on sodium chloride and magnesium chloride that is used in highway and consumer de-icing, dust control, water conditioning, consumer and industrial food preparation, and agricultural and industrial applications.
De-Icing Chemicals in Demand
Compass Minerals purchases potassium chloride and calcium chloride to sell as finished products or to blend with sodium chloride to produce specialty products, such as rock salt, and flake magnesium chloride products to producers of vinyls, pulp and paper, and for water treatment.
It is these salts that are most often used for de-icing. The more winter weather there is, the higher the demand for those salts.
Not to worry, though. Compass Minerals isn’t a one-trick pony. It also operates a Specialty Fertilizer segment, for vegetables, fruits, potatoes, nuts, tobacco, and turf grass.
Although demand can be cyclical and, in some cases, weather-dependent, Compass Minerals has managed itself very well financially to stick it out in tough times. Right now, things are booming, with FY15 earnings expected to grow 15% tp $5.50 per share and another 8.5% in FY`16.
Compass Minerals reported earnings last week that showed total sales up 12%, net income up a whopping 38%, adjusted EBITDA up 34% and . . . drumroll . . . record operating earnings in the salt segment. That’s because, even though snow events occurred at a rate 25% below the average, the severity created extra demand. Long live Olaf the Snowman!
Fantastic 2014 Report
For the year, Compass Minerals’ total sales were up 14%, net income up 27%, adjusted EBITDA up 20%, and cash flow from operations of $243 million.
That sounds like a pretty fantastic report. Meanwhile, the company has $267 million in cash and $622 million in debt accruing just under 4% interest.
So we have a company trading at 17x FY15 earnings and 15x FY16 earnings, with analysts forecasting five-year annualized growth of 17.4%. My eyes do not deceive me, but I see a GARP stock staring me in the face. You get the upper-teen growth rate and a stock trading at the same P/E ratio.
In a market where most growth stocks are overvalued by at least 50%, finding a company that trades at this reasonable a P/E ratio should not be dismissed. See if Compass Minerals fits into your long-term portfolio strategy and if it does, enjoy the growth and the 2.9% yield.
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