There was a time when investors viewed a restructuring as a big advantage. No longer, to judge from the slumping stock price of Ashland (ASH), a major independent oil refiner and specialty chemical producer. Ashland has spent the past few years restructuring its operations. So far, however, that hasn't cut the mustard with investors. In spite of the rising price of crude, Ashland shares have slid to 32, down from as high as 44 a year ago.
"The stock is a bargain: It doesn't reflect the company's efforts to enhance shareholder value," says Starr Securities' Richard Cohen, a highly regarded oil analyst. He figures the stock is worth 45, based on Ashland's estimated cash flow for the year ending Sept. 30, 2000, of $8.32 a share, and a ratio of five to six times cash flow. Ashland is also trading at less than three times earnings before interest, taxes, depreciation, and amortization (EBITDA), which he estimates at $12 a share for fiscal 2000.
If the stock continues to weaken, Ashland is in danger of becoming a target of some of the oil majors, says Cohen. And in order to enhance shareholder value, the company may decide to exit its refining and marketing joint venture with Marathon Oil. Ashland owns 38% of Marathon Ashland Petroleum, the fourth-largest refiner in the U.S. Marathon has the right to buy Ashland's stake after Dec. 31, 2004.
"Ashland may try to accelerate its exit from the venture," says Cohen. One other way to exit is by selling the 38% stake in a public offering, says the analyst. He figures Ashland will post operating earnings of $3.60 a share in fiscal 2000.