Innospec In A Lull, But A Big Deal Can Drive Value

I liked Innospec (NASDAQ:IOSP) as a value play back in April, as I thought the Street was too caught up in the weakness in the Oilfield Services business and overlooking the long-term potential in the core Fuel Specialties and Performance Chemicals businesses, as well as the possibilities for value-creating M&A and an eventual recovery in the oil business. I didn't expect the stock to be this strong, though, with the shares up almost 40% since that last piece.

Innospec was doing pretty well on its own through August as margins were holding up better than analysts expected. The big jump came with the second quarter earnings, though, as the company announced the $200 million acquisition of Huntsman's (NYSE:HUN) European surfactant business. Although this business looks more commoditized than Innospec's Performance Chemicals business, there are opportunities here for cross-selling and margin improvement and this gives Innospec a European foothold that could prove more valuable in the years to come.

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Innospec In A Lull, But A Big Deal Can Drive Value