The chemical industry is well-positioned for long-term growth due to the strong demand for specialized chemicals and the integration of digital technology. Given the industry’s growth prospects, fundamentally strong chemical stocks RPM International Inc. (RPM), Akzo Nobel N.V. (AKZOY) and Nitto Denko Corporation (NDEKY) might be ideal additions to your watchlists.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the chemical industry.
According to the American Chemistry Council (ACC), the Global Chemical Production Regional Index (Global CPRI) rose 0.1% in December, following a revised 0.5% increase in November. In the United States, the Chemical Production Regional Index (U.S. CPRI) increased 0.4% in December.
Martha Moore, ACC’s chief economist, said, “The gain in December was led by North America and Asia-Pacific. Even though global production was higher on a year-over-year basis, Europe continued to see weakness as production remained below last year’s level.”
He further added, “In the U.S., chemical output rose in all regions except the Gulf Coast. There were signs of recovery in the output volumes of agricultural and coatings and other specialty chemicals that offset ongoing weakness in basic industrial chemicals and synthetic materials.”
The global chemicals market is expected to be worth $7.79 trillion by 2028, with a CAGR of 8.7%. The rising demand for inorganic chemicals in the fertilizer industry is expected to propel the chemicals market forward, as these chemicals improve plant growth and productivity.
Furthermore, the global artificial intelligence (AI) in the chemical market is expected to reach $10.1 billion by 2030, with a 31.9% CAGR. Government investments and the incorporation of modern technologies such as IoT and VR are also fueling this expansion.
Considering these conducive trends, let’s take a look at the fundamentals of the three above-mentioned Chemicals stocks, starting with the third stock.
Stock #3: RPM International Inc. (RPM)
RPM manufactures and sells specialty chemicals for the industrial, specialty, and consumer markets worldwide.
RPM’s trailing-12-month ROCE of 23.48% is 224.3% higher than the industry average of 7.24%. Its trailing-12-month ROTA of 8.03% is 133.3% higher than the industry average of 3.44%.
For the fiscal second quarter ended November 30, 2023, RPM’s net sales increased marginally from the year-ago quarter to $1.79 billion. Also, adjusted EBIT increased 10.4% year-over-year to $236.89 million and adjusted EPS increased 10.9% year-over-year to $1.22.
Analysts expect RPM’s revenue to increase 2% year-over-year to $7.40 billion for the year ending May 2024. Its EPS is expected to grow 15.5% year-over-year to $4.97 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 29.1% over the past nine months to close the last trading session at $104.87.
RPM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RPM has a B grade for Growth and Quality. Within the Chemicals industry, it is ranked #9 out of 84 stocks. To see additional POWR Ratings for Value, Stability, Momentum and Sentiment for RPM, click here.
Stock #2: Akzo Nobel N.V. (AKZOY)
Based in Amsterdam, Netherlands, AKZOY engages in the production and sale of paints and coatings internationally. It provides decorative paints, lacquers, and varnishes, and a range of mixing machines and color concepts for building, renovation, and specialty coatings segments. It also offers performance coatings for ships, cars, aircraft, and yachts.
AKZOY’s trailing-12-month gross profit margin of 38.54% is 35% higher than the industry average of 28.55%. Its 6.67% trailing-12-month levered FCF margin is 43.9% higher than the 4.63% industry average.
During the third quarter that ended September 30, 2023, AKZOY’s gross profit grew at 14.7% year-over-year to €1.12 billion ($1.22 billion). The company’s adjusted operating income rose 76.1% from the year-ago value to €324 million ($353.31 million). Its adjusted EBITDA grew 46.3% from the prior year’s quarter to €414 million ($451.45 million).
Also, the company’s net income attributable to shareholders increased 125% year-over-year to €189 million ($206.01 million). Its adjusted earnings per share from continuing operations were €0.99, up 73.7% from the previous year’s quarter.
Street expects AKZOY’s revenue to increase marginally year-over-year to $11.76 billion for the year ending December 2024. Its EPS is expected to grow 11.9% year-over-year to $1.53 for the same period. AKZOY’s shares have gained 12.5% over past three months to close the last trading session at $25.59.
It’s no surprise that AKZOY has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Growth and a B for Stability and Quality. It is ranked #8 in the same industry.
Beyond what is stated above, we’ve also rated AKZOY for Value, Sentiment and Momentum. Get all AKZOY ratings here.
Stock #1: Nitto Denko Corporation (NDEKY)
Headquartered in Osaka, Japan, NDEKY mainly engages in the industrial tape, optronics, and life science businesses. The company also offers functional thermal transfer systems, medical products, electrical and electronic equipment tapes, dust removal products, fluoroplastic sheets, tapes, porous films, and materials.
NDEKY’s trailing-12-month levered FCF margin of 6.62% is 42.8% higher than the industry average of 4.63%. Its trailing-12-month ROTA of 7.93% is 130.3% higher than the industry average of 3.44%.
For the nine-month ended on December 31, 2023, NDEKY’s revenue came in at ¥693.90 billion ($4.69 billion). Net income and earnings per share attributable to owners of the parent company amounted to ¥81.60 billion ($551.08 million) and ¥570.62.
The company reported total current assets of ¥693.57 billion ($4.68 billion) as of December 31, 2023, compared to total current assets of ¥677.19 billion ($4.70 billion) as of March 31, 2023.
The consensus revenue estimate of $6.25 billion for the year ending March 2024 reflects a 53.4% rise year-over-year. The stock has gained 36.2% over the past year to close the last trading session at $43.01.
NDEKY has an overall B rating, equating to a Buy in our POWR Ratings system.
NDEKY’s is ranked #4 in the same industry. It has an A grade for Quality and a B for Stability. To see additional NDEKY’s ratings for Momentum, Growth, Sentiment and Value, click here.
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RPM shares were trading at $105.66 per share on Wednesday morning, up $0.79 (+0.75%). Year-to-date, RPM has declined -4.94%, versus a 4.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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