The chemical industry is poised for significant expansion, propelled by robust demand across various customer segments and increasing awareness among consumers. Given the favorable industry trends, quality chemical stocks Brenntag SE (BNTGY), RPM International Inc. (RPM), and PPG Industries, Inc. (PPG) might generate significant returns in the near term.
Global chemical manufacturers have witnessed over 5% increase in end-user demand for green chemicals across customer segments such as specialty industrial and specialty consumer chemicals. This is due to stringent government regulations for creating a sustainable industrial ecosystem and increasing awareness among consumers and digital transformation.
Moreover, the chemicals market is set for robust expansion, as indicated by the Global market model's projection of growth at a CAGR of 8.9% until 2032. This growth is underpinned by a burgeoning demand across a range of applications, particularly within the packaging and automobile sectors.
In addition, increasing demand for specialty chemicals from the agrochemical industry, the increasing demand for recycled plastics, and the growing demand for construction chemicals is driving growth in specialty chemicals market. The specialty chemicals market is estimated to grow at a CAGR of 7% until 2027.
With these favorable trends in mind, let's delve into the fundamentals of the three Chemicals stock picks, beginning with the third choice.
Stock #3: Brenntag SE (BNTGY)
Based in Essen, Germany, BNTGY purchases and supplies various industrial and specialty chemicals, and ingredients in Germany and internationally. The company operates in two segments, Brenntag Essentials; and Brenntag Specialties.
BNTGY pays $0.44 annually as dividends which translates to a yield of 1.81% at the current price. Its four-year average dividend yield is 2.21%.
BNTGY’s trailing-12-month ROTA of 6.52% is 31.8% higher than the industry average of 4.94%, while its trailing-12-month levered FCF margin of 7.14% is 18.8% higher than the industry average of 6.01%.
BNTGY’s net sales for the fiscal third quarter that ended September 30, 2023, came in at €4.09 billion ($4.46 billion). Its operating EBITA stood at €302.70 million ($330.08 million). Moreover, profit attributable to BNTGY shareholders and earnings per share came in at €176.30 million ($192.25 million) and €1.18, respectively. For the same quarter, the company’s free cash flow increased 27% year-over-year to €441.60 million ($481.55 million).
The consensus revenue estimate of 19.70 billion for the year ending December 2024 represents a 4.9% increase year-over-year.
The stock has gained 16.8% over the past month to close the last trading session at $16.74.
BNTGY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade in Momentum and Stability. It is ranked #16 out of 83 stocks in the Chemicals industry.
Click here to see the other ratings of BNTGY (Growth, Value, Sentiment, and Quality).
Stock #2: RPM International Inc. (RPM)
RPM manufactures and sells specialty chemicals for the industrial, specialty, and consumer markets worldwide.
On October 3, 2023, RPM announced that the wall system fabrication segment (the Fabrication Business) of NOW Specialties, LLC (NOW) had been acquired by RPM’s Tremco CPG Inc. and is now part of Tremco Construction Products Group (Tremco CPG).
RPM pays $1.84 annually as dividends which translates to a yield of 1.81% at the current price. Its four-year average dividend yield is 1.82%.
RPM’s trailing-12-month gross profit margin of 38.61% is 35.8% higher than the industry average of 28.43%, while its trailing-12-month levered FCF margin of 6.68% is 61.7% higher than the industry average of 4.13%.
For the fiscal first quarter ended August 31, 2023, RPM’s net sales increased 4.1% from the year-ago quarter to $2.01 billion. Also, adjusted EBIT increased 12.3% year-over-year to $309.01 million and adjusted EPS increased 11.6% year-over-year to $1.64.
Analysts expect RPM’s EPS for the fiscal second quarter ended November 30, 2023, to increase 11.4% year-over-year to $1.23. Its revenue is expected to increase 2.5% year-over-year to $1.84 billion for the same quarter. Also, the company topped the consensus EPS estimates in each of the four trailing quarters, which is impressive.
The stock has gained 9.2% over the past month to close the last trading session at $101.79.
RPM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Quality and Sentiment. Within the same industry, it is ranked #20.
Beyond what is stated above, we’ve also rated RPM for Growth, Momentum, Value, and Stability. Get all RPM ratings here.
Stock #1: PPG Industries, Inc. (PPG)
PPG manufactures and distributes paints, coatings, and specialty materials worldwide. The company operates through Performance Coatings and Industrial Coatings segments.
On October 19, 2023, PPG declared a regular quarterly dividend of 65 cents per share, payable December 12, 2023.
PPG pays $2.60 annually as dividends which translates to a yield of 1.90% at the current price. Its four-year average dividend yield is 1.72%.
On October 6, 2023, PPG and the PPG Foundation announced a commitment to invest $2 million through 2025 to support workforce development initiatives that provide training and opportunities for future skilled workers in manufacturing and coatings application.
PPG’s trailing-12-month gross profit of 40.30% is 41.8% higher than the industry average of 28.4%. Its trailing-12-month levered FCF margin of 7.03% is 70% higher than the industry average of 4.13%.
For the fiscal third quarter that ended September 30, 2023, PPG’s net sales increased 3.9% year-over-year to $4.64 billion. The adjusted net income and adjusted earnings per share attributable to PPG grew 25.4% and 24.7% from the prior year’s quarter to $493 million and $2.07, respectively.
Street expects PPG’s revenue to increase 1.6% year-over-year to $4.25 billion for the fiscal fourth quarter ending December 2023. Its EPS is expected to grow 22% year-over-year to $1.49 for the same quarter. Also, the company topped the consensus EPS estimates in three of the four trailing quarters.
Over the past month, the stock has surged 9.6% to close the last trading session at $136.64.
It’s no surprise that PPG has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Quality, Growth and Sentiment. Within the same industry, it is ranked #11.
In addition to the POWR Ratings stated above, one can access PPG's ratings for Momentum, Value, and Stability here.
What To Do Next?
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PPG shares were trading at $136.73 per share on Friday morning, up $0.09 (+0.07%). Year-to-date, PPG has gained 10.80%, versus a 20.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
3 Chemical Stocks Fueling Positive Investments StockNews.com
