An emerging stock in the commodities sector, Luxfer Holdings PLC (ADR) (NYSE: LXFR) seems to be an interesting pick. Largely off the radar of most investors, this company was downgraded by Zacks Investment Research on May 20th to a strong sell. This decision was largely made based on the short-term financial performance of the company, while ignoring the company's long-term growth prospects. Positioned in a lucrative industry, having posted positive earnings consecutively and paid out dividends for the last two years, you won't want to discount this stock.
Luxfer Holdings PLC designs and manufactures components, gas cylinders and specialized materials for the mining and natural gas industries. Although there are a number of business units under Luxfer, the Gas Cylinders division is of great interest at the moment. The high price of diesel at the pump has meant owners of vehicles that consume a lot of diesel need to find cheaper fuel alternatives.
Improvements in technology over the last few year in natural gas extraction and processing may not have come at a better time. The Cummins Westport ISX12 G engine, which runs on natural gas, could replace diesel run engines on most heavy duty vehicles. It is estimated that between 15-35 percent of these vehicles could be running on natural gas by 2020. This means increased demand for Luxfer's gas cylinders.
With all the hype about the potential represented by natural gas being adopted as a less costly fuel for heavy vehicles, it is important to tread carefully. Compressed natural gas refuelling stations have only been available since April 2014. We also need to consider the time it is going to take before this fuel gains greater acceptance in the market. Hence, we have not started seeing the impacts of this on the fundamentals of Luxfer Holdings PLC. For the first quarter of this year, the company reported revenues of $123.3 million, representing just a 0.7 percent increase from the previous year. Earnings came at $0.28 per share missing the Zack's consensus estimate of $0.32. The company also saw a decrease in its available cash.
Nevertheless, the company is positioning itself to be a prominent player in the natural gas industry. In March, Luxfer Holdings PLC announced that it was acquiring Vexxel Composites, LLC. The acquisition amount was not disclosed, however the company states that the acquisition is going to bolster its position in the natural gas industry. Furthermore, the company is showcasing new innovative products in the market such as the G-Stor® Go gas cylinder which was on display at the ACT Expo tradeshow on May 8th 2014. Already making up 45 percent of the company's revenues, gas cylinders will play an important role in the company's future
Luxfer Holdings is a healthy stock with great potential. Although both top line and bottom line are showing lacklustre growth at the moment, this is only temporary and an upside is very likely. The company's stock is still trading on the high side and you may want to watch out for any retreat before deciding to enter.