The specialty chemicals market is poised for strong growth as demand rebounds in key industries like automotive, aerospace, and electronics. Against this promising backdrop, investing in high-growth specialty chemicals stocks like Element Solutions Inc (ESI), Avient Corporation (AVNT), and Axalta Coating Systems Ltd. (AXTA) could yield substantial gains.
The long-term outlook for specialty chemicals is positive, driven by a resurgence in U.S. manufacturing and favorable energy conditions. With rising demand for agro and construction chemicals, the specialty chemicals market is expected to grow at a 6.8% CAGR until 2028, reaching $368.20 billion. This growth highlights the vital role of specialty chemicals, making them a promising investment opportunity.
Meanwhile, technological innovations are transforming specialty chemical manufacturing, leading to advanced materials and cost-effective formulations. Also, government initiatives and a shift toward sustainability are driving growth in chemicals that support the energy transition. Hence, the global chemical market is projected to reach $5.57 trillion this year, growing at a 9% CAGR.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Chemicals picks, beginning with the third choice.
Stock #3: Element Solutions Inc (ESI)
ESI operates as a specialty chemicals company in the United States, China, and internationally. The company functions in two segments: Electronics, and Industrial & Specialty.
In terms of the trailing-12-month gross profit margin, ESI’s 41.28% is 44.1% higher than the 28.64% industry average. Likewise, its 10.29% trailing-12-month levered FCF margin is 96.5% higher than the 5.23% industry average. Also, its 3.90% trailing-12-month Return on Total Assets is 73.7% higher than the 2.25% industry average.
ESI’s total assets grew at a CAGR of 2.4% over the past three years. Its revenue grew at a CAGR of 4.6% over the past five years. Moreover, its levered FCF grew at a CAGR of 6.3% over the past three years.
ESI’s net sales for the second quarter ended June 30, 2024, were $612.70 million, indicating a 4.5% year-over-year increase. Likewise, its adjusted EBITDA increased 16.4% year-over-year to $135.10 million. The company’s adjusted net income and adjusted EPS rose 17.2% and 16.1% over the prior-year quarter to $88.70 million and $0.36, respectively.
Analysts expect ESI’s revenue for the quarter ending September 30, 2024, to increase 5% year-over-year to $629.07 million. Its EPS for the same quarter is expected to grow 7.6% year-over-year to $0.39. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, ESI’s stock has gained 23% to close the last trading session at $25.68.
ESI’s promising outlook is reflected in its POWR Ratings. It 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.
It has a B grade for Growth and Sentiment. Within the B-rated Chemicals industry, it is ranked #31 out of 81 stocks. To see ESI’s ratings for Value, Momentum, Stability, and Quality, click here.
Stock #2: Avient Corporation (AVNT)
AVNT operates as a formulator of material solutions in the United States, Canada, Mexico, Europe, South America, and Asia. It functions in two segments: Color, Additives and Inks, and Specialty Engineered Materials.
In terms of the trailing-12-month levered FCF margin, AVNT’s 9.77% is 86.6% higher than the 5.23% industry average. Similarly, its 17.28% trailing-12-month EBITDA margin is 4% higher than the industry average of 16.62%. Its 11.59% trailing-12-month EBIT margin is 7% higher than the industry average of 10.83%.
AVNT’s EBITDA grew at a CAGR of 3.4% over the past three years. Similarly, its total assets grew at a CAGR of 5.4% during the same period. Also, its EBIT grew at a CAGR of 1.2% over the past three years.
During the second quarter, which ended on June 30, 2024, AVNT’s sales grew 3.1% from the year-ago value to $849.70 million. The company’s operating income rose 18.5% year-over-year to $99.70 million. Moreover, its adjusted net income and adjusted EPS were $70.20 million and $0.76, respectively, up 21.2% and 20.6% from the year-ago value.
Street expects AVNT’s EPS and revenue for the quarter ending September 30, 2024, to increase 9.5% and 5.2% year-over-year to $0.62 and $793.15 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, AVNT’s stock has gained 33.3% to close the last trading session at $47.32.
AVNT’s POWR Ratings reflect its bright outlook. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Growth and Sentiment. It is ranked #15 in the same industry. To see AVNT’s Value, Momentum, Stability, and Quality ratings, click here.
Stock #1: Axalta Coating Systems Ltd. (AXTA)
AXTA and its subsidiaries manufacture, market, and distribute high-performance coating systems in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The company operates through two segments: Performance Coatings and Mobility Coatings.
On September 3, 2024, AXTA introduced the Axalta Irus Scan, a next-generation spectrophotometer designed to enhance color-matching accuracy and efficiency for refinish customers. The device features advanced color measurement and gloss capabilities, improving productivity, reducing waste, and optimizing labor in automotive refinishing.
On July 2, 2024, AXTA Coating Systems completed the acquisition of The CoverFlexx Group from Transtar Holding Company. This acquisition enhances AXTA’s offerings in automotive refinish coatings and supports its growth strategy in the Refinish business.
In terms of the trailing-12-month Return on Common Equity, AXTA’s 17.46% is 208.6% higher than the 5.66% industry average. Its 10.22% trailing-12-month levered FCF margin is 95.3% higher than the 5.23% industry average. In addition, its 8.50% trailing-12-month Return on Total Capital is 72% higher than the 4.94% industry average.
AXTA’s revenue grew at a CAGR of 7% over the past three years. Its EPS grew at a CAGR of 2.7% over the past three years. Moreover, its EBIT grew at a CAGR of 3.6% over the past three years.
In the fiscal second quarter ended June 30, 2024, AXTA reported net sales of $1.25 billion, up 4.4% year-over-year. The company’s adjusted net income stood at $127 million, or $0.57 per share, indicating increases of 64.9% and 62.9% from the year-ago values. Furthermore, its adjusted EBIT rose 43.9% year-over-year to $223 million.
For the quarter ending September 30, 2024, its EPS and revenue are expected to increase 14.4% and 2.1% year-over-year to $0.51 and $1.34 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 26.3% to close the last trading session at $35.74.
AXTA’s POWR Ratings reflect solid fundamentals. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #11 in the Chemicals industry. It has a B grade for Growth and Quality. Click here to access additional ratings for AXTA’s Value, Momentum, Stability, and Sentiment ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AXTA shares were trading at $35.21 per share on Wednesday afternoon, down $0.53 (-1.48%). Year-to-date, AXTA has gained 3.65%, versus a 16.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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