The chemical industry was impacted severely due to intensified supply chain disruptions caused by the Ukraine-Russia war, rising energy costs, and manufacturing headwinds. However, solid financial results of major U.S. chemical companies in the first quarter of 2022 demonstrate that the sector was able to withstand the negatives significantly.
Moreover, the U.S. chemical industry is poised for a strong recovery this year due to heavy demand for commodity and specialty chemicals, which are expected to keep prices resilient throughout the year. Surprisingly, the chemical industry influences the production of more than 96% of the manufactured goods. In addition, the increasing use of basic chemicals across various industries should drive the growth of the global basic chemicals market. The global basic chemicals market is projected to grow at a CAGR of 4.1% to $943 Billion by 2030.
Given this backdrop, we think it could be wise to scoop up the shares of fundamentally sound chemical stocks Huntsman Corporation (HUN) and AdvanSix Inc. (ASIX), which look undervalued at their current price levels.
Huntsman Corporation (HUN)
Headquartered in The Woodlands, Texas, HUN manufactures and sells differentiated organic chemical products worldwide. The company has four operating segments: Polyurethanes; Performance Products; Advanced Materials; and Textile Effects.
In terms of forward non-GAAP P/E, HUN is currently trading at 8.01x, 29.3% lower than the 11.33x industry average. Also, in terms of its forward Price/Sales, the stock is currently trading at 0.78x, 36.1% lower than the 1.23x industry average.
For the first quarter ending March 31, 2022, HUN’s revenue increased 30% year-over-year to $2.39 billion. Its operating income grew 141.3% from its year-ago value to $304.00 million, while its adjusted net income improved 74.1% from its prior-year quarter to $256.00 million. The company’s adjusted EPS rose 80.3% year-over-year to $1.19.
Analysts expect HUN's revenue to increase 14.4% year-over-year to $2.32 billion for the second quarter ending June 2022. The company's EPS is expected to grow 32% year-over-year to $1.14 in the second quarter ending March 2022. Moreover, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters. The company's shares have soared 23.7% over the past year and 44.9% over the past nine months.
HUN's POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has an A grade for Value and a B grade for Growth and Sentiment. Within the A-rated Chemicals industry, it is ranked #15 of 89 stocks. To see additional POWR Ratings for Quality, Stability, and Momentum for HUN, click here.
AdvanSix Inc. (ASIX)
Headquartered in Parsippany, New Jersey, ASIX manufactures and sells polymer resins in the United States and worldwide. It provides Nylon 6, a polymer resin, a synthetic material used to produce fibers, filaments, engineered plastics, and films. The company also renders caprolactam to manufacture polymer resins; ammonium sulfate fertilizers to distributors, farm cooperatives, and retailers.
In terms of forward Non-GAAP P/E, ASIX is currently trading at 5.69x, 52.2% lower than the 11.90x industry average. Also, in terms of its forward Price/Sales, the stock is currently trading at 0.60x, 51.1% lower than the 1.23x industry average.
In the first quarter ending March 31, 2022, ASIX’s sales increased 27.3% year-over-year to $479.07 million. Its adjusted EBITDA grew 79.1% from its year-ago value to $103.16 million, while its net income improved 124.2% from its prior-year quarter to $63.07 million. The company’s EPS rose 119.4% year-over-year to $2.26.
The consensus EPS estimate of $2.55 for the second quarter ending June 2022 represents a 66.3% year-over-year growth. Analysts expect revenue to increase 28.9% year-over-year to $564.37 million for the same period. In addition, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters. The stock has gained 47.5% over the past year and 29.4% over the past six months.
ASIX's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value and a B for Growth and Sentiment. Within the A-rated Industrial - Manufacturing industry, it is ranked #2 of 37 stocks.
In total, we rate ASIX on eight different levels. Beyond what we've stated above, we have also given ASIX grades for Quality, Stability, and Momentum. Get all the ASIX ratings here.
HUN shares were trading at $35.20 per share on Tuesday afternoon, down $0.24 (-0.68%). Year-to-date, HUN has gained 1.49%, versus a -16.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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