LSB Industries, Inc. (“LSB”) reported financial results for the quarter ended September 30, 2018 reflecting substantial progress in improving operational reliability and efficiency at the company’s chemical plants as well as materially improved product pricing. Although management believes significant work remains, plant on-stream rates suggest that several ongoing initiatives aimed at decreasing downtime and enhancing maintenance programs appear to be bearing fruit. Furthermore, domestic pricing for agricultural fertilizers has firmed substantially as markets come into balance after several tumultuous years. Global Value Research Company (GVRC) notes that improving operational results and firming product prices suggest that earnings may accelerate in the near future, and that the company’s valuation on the basis of both its tangible book value (TBV) and a range of earnings-based measurements are attractive relative to the current stock price of $8.05. While the company’s long-term value lies in its ability to produce attractive and consistent cash flow, GVRC assess LSB’s TBV of approximately $11.30 as an appropriately conservative valuation metric until such earnings materialize. Considering substantial operational improvement, GVRC believes that a modest premium to TBV is justified and raises its target price from $12.30 to $14.10.
