Zacks Analyst Blog Highlights: NewMarket Corp. and Delphi Financial Group

Business Wire, July 31, 2006

CHICAGO -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day, the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: NewMarket Corp (NYSE:NEU) and Delphi Financial Group (NYSE:DFG).

See the latest posts to the Analyst Blog by visiting: http://at.zacks.com/?id=2673

Here are highlights from Friday's Analyst Blog:

Notes on Slowing Economy

The preliminary second quarter GDP came in at 2.5%, well below expectations of about 3.2% and the first quarter number of 5.6%. While the first quarter was clearly unsustainable, and mostly a catch up from the very low fourth quarter level of 1.8% (down on the storms, up on the rebuilding), it is clear that the economy is slowing quickly. The PCE deflator also came in slightly lower than expected at 3.2% vs. expectations of 3.4%. Taken together, these numbers argue strongly for a pause at the next Fed meeting on August 8th. I had been in the camp thinking that the fed would bump one more time in August, even though I thought they should pause. With these numbers, I think they will pause.

Looking deeper into the numbers growth, the economy is even slower than it appears at first glance. It is clear that the housing slowdown is starting to have an effect, as real residential investment fell 6.3% in the second quarter vs. only a 0.3% decline in the first quarter. However, other capital spending is also slowing, as real non-residential investment rose only 2.7% vs. a red-hot 13.7% in the first quarter. Both imports and exports are slowing, with exports rising 3.3% vs. a 14.0% increase in the first quarter and imports rising just 0.2% vs. being up 9.1% in the first quarter.

Most significantly, the change in inventories added 0.4% to GDP growth in the second quarter, while change in inventories had no significant impact in the first quarter. Thus the growth in real final sales was only 2.1% vs. 5.6% in the first quarter. Thus, some of the headline growth in GDP was actually "borrowed" from growth in the third quarter.

Newmarket Corp's Target $75

Growth in the petroleum additives business, price increases and falling debt levels are some of the factors making us positive about NewMarket Corp's (NYSE:NEU) stock performance in the near-term. Additionally, management's efforts to control costs and improve manufacturing efficiencies have enhanced the company's operating leverage. Thus, we reiterate our Buy rating on the stock, with a six-month target price of $75.00.

Currently, shares of NewMarket Corporation are trading at 13.2x our 2006 cash flow. The improving petroleum additives business and falling debt levels make us believe that the stock deserves to trade at a higher P/CF multiple. Thus, we rate the shares a Buy, and have set a six-month target price of $75.00. This is 20.8x 2006 CF estimate.

DFG Positives Priced In

Delphi Financial Group (NYSE:DFG) has, in our opinion, strong potential to expand its ROE beyond the 12.8-13.9% level it has generated in the last three years. The hard market for excess workers comp insurance (more than 40% of Delphi's income in 2005), Delphi's recent sale of its reserve-intensive property catastrophe business, and potential to increase its premium-to-equity ratio are three catalysts for improving ROE, in our opinion.

Nevertheless, pricing the workers comp market is showing signs of moderation and we think the positives are factored into Delphi's valuation multiple, which has expanded recently. Therefore, we believe DFG stock will perform in-line with the overall market.

See the latest posts to the Analyst Blog by visiting http://at.zacks.com/?id=2645

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