Ongoing operational issues, disappointing on-stream rates, and cyclical market dynamics have contributed to under-performance of LSB Industries, Inc.’s common stock. However, Global Value Research Company (GVRC) believes a turnaround is underway. Revised plant operational procedures and maintenance practices have enormous potential to increase on-stream rates. Improving agricultural fertilizer market conditions should yield more attractive product pricing. LSB’s management team has demonstrated progress towards its goals of increasing plant productivity and company earnings; GVRC believes the results of their efforts will become evident in upcoming financial results. The company trades at a steep discount to its tangible book value of approximately $12.30 per share and the net replacement value of its assets, which GVRC estimates to be in the range of $35.00 to $40.00 per share. Considering the company’s improving prospects, GVRC believes the current share price of $6.57 grossly understates the value of the enterprise. Although the company’s long-term value lies in its ability to produce attractive and consistent cash flow, GVRC assesses a fair baseline value equal to tangible book value. GVRC therefore initiates coverage with a target price of $12.30.
