Rising industrial and agricultural demand for chemicals amid an ongoing economic recovery should drive the chemical industry’s growth. Analysts expect the easing of supply chain disruptions and rising manufacturing activity to boost the industry’s production volume this year. The global specialty chemicals market is expected to grow at a 6.2% CAGR to $894.14 billion by 2028.
However, growing concerns over the ongoing Russia-Ukraine war and the aftermath of the economic sanctions imposed on Russia have been driving immense volatility and sell-offs in the global stock markets and inflating the prices of oil and natural gas worldwide. Although chemical companies are concerned about this scenario, the strong global demand and rising prices should enable domestic companies to keep growing.
Given this backdrop, it could be wise to invest in fundamentally sound chemical stocks Dow Inc. (DOW), Celanese Corporation (CE), and Olin Corporation (OLN), which are currently trading at discounts to their peers.
Dow Inc. (DOW)
DOW offers a range of science-based products and solutions for consumer care, infrastructure, and packaging markets worldwide. The company operates through Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials and Coatings segments. It is also in the property and casualty insurance and reinsurance business.
On February 22, 2022, DOW, Sartorius AG, a German-based pharmaceutical and lab equipment supplier, and Südpack Medica, a producer of high-tech films and packaging materials for food, non-food, medical, and pharmaceutical applications, announced their collaboration to manufacture bioprocessing bags, which is essential for the safe production and transportation of coronavirus vaccines worldwide. Made from multilayer films, sterile bio-reactor bags with a 2-liter capacity can help achieve outstanding speed, quality, and flexibility in the vaccine development process as well as in commercial manufacturing operations.
For its fiscal 2021 fourth quarter, ended December 31, 2021, DOW’s net sales increased 34.2% year-over-year to $14.36 billion. The company’s non-GAAP pre-tax income came in at $2.12 billion for the quarter, indicating a 147.4% gain over the prior-year period. DOW’s non-GAAP net income came in at $1.61 billion, representing a 165.6% rise from the prior-year period. Its non-GAAP EPS increased 165.4% year-over-year to $2.15. DOW had $2.99 billion in cash and cash equivalents as of December 31, 2021.
Analysts expect DOW’s EPS to improve 40.4% year-over-year to $1.91 for fiscal 2022 first quarter, ending March 31, 2022. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $14.26 billion for the same fiscal year represents a 20% rise from the prior-year period.
The stock has lost 1.8% over the past month and closed yesterday’s trading session at $58.96. DOW’s 0.40x non-GAAP forward PEG is 65.9% lower than the 1.18x industry average. In terms of forward EV/EBIT, DOW is currently trading at 8.17x, 27.5% lower than the industry average of 11.27x. The company’s EBITDA and EPS have grown at CAGRs of 9.2% and 30.7%, respectively, over the past three years.
DOW’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and a B grade for Quality. Click here to see the additional ratings for DOW’s Stability, Growth, Momentum, and Sentiment. DOW is ranked #15 of 89 stocks in the A-rated Chemicals industry.
Celanese Corporation (CE)
CE is a technology and specialty materials company that manufactures and sells high-performance engineered polymers internationally. The company operates through three segments ─ Engineered Materials; Acetate Tow; and Acetyl Chain. It serves automotive, chemical additives, construction, consumer and industrial adhesives, consumer and medical, energy storage, filtration, food and beverage, paints and coatings, paper and packaging, performance industrial and textiles.
On February 18, 2022, CE announced the signing of a definitive agreement to acquire a majority of the Mobility & Materials (M&M) business of DuPont de Nemours, Inc. (DD), a provider of technology-based materials and solutions, for $11 billion in cash. M&M’s broad portfolio of engineered thermoplastics, elastomers, and industry-renowned brands will help CE gain more reach in the global specialty materials market. This should allow CE to accelerate its growth in high-value applications, including future mobility, connectivity, and medical.
For its fiscal 2021 fourth quarter ended December 31, 2021, CE’s net sales increased 43% year-over-year to $2.28 billion. The company’s gross profit increased 91.8% year-over-year to $721 million. Its operating profit came in at $517 million, indicating a 154.7% rise from the year-ago period. CE’s non-GAAP net income came in at $537 million, representing a 121% year-over-year improvement. Its non-GAAP EPS came in at $4.91, up 134.9% from the prior-year period. As of December 31, 2021, the company had $536 million in cash and cash equivalents.
The consensus EPS estimate of $4.49 for fiscal 2022 first quarter, ending March 31, 2022, represents a 29.8% rise from the prior-year period. It surpassed the consensus EPS estimates in three trailing four quarters. Analysts expect the company’s revenue to reach $2.23 billion for the same fiscal year, representing a 24.1% rise from the prior-year period.
CE has lost 9.1% over the past month and ended yesterday’s trading session at $139.28. In terms of non-GAAP forward PEG, CE is currently trading at 0.62x, 48% lower than the 1.18x industry average. In terms of forward EV/EBIT, CE is currently trading at 9.27x, 17.8% lower than the industry average of 11.27x. The company’s EBITDA and EPS have increased at CAGRs of 14.5% and 24%, respectively, over the past three years.
CE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Quality. Click here to see the additional ratings for CE (Stability, Value, Growth, Momentum, and Sentiment). CE is ranked #31 in the same industry.
Olin Corporation (OLN)
OLN manufactures and distributes chemical products and ammunition internationally. The company operates through Chlor Alkali Products and Vinyls; Epoxy; and Winchester. Its products are sold through its sales force, directly to various industrial customers, mass merchants, retailers, wholesalers, other distributors, and the U.S. Government and its prime contractors.
Note that OLN is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
On July 1, 2021, OLN agreed with ASHTA Chemicals, Inc. to purchase and sell the chlorine produced at ASHTA’s Ashtabula, Ohio facility. This agreement provides the opportunity to optimize logistics across the OLN and ASHTA portfolio, reducing the number of miles chlorine travels to get to customers and overall transportation costs while increasing the security and flexibility of supply within the growing OLN network. Both companies are looking forward to focusing on their strengths to serve their growing customer base.
For its fiscal 2021 fourth quarter ended December 31, 2021, OLN’s sales increased 46.9% year-over-year to $2.43 billion. The company’s operating income came in at $525.60 million, representing a 553.7% rise from the prior-year period. OLN’s net income came in at $306.60 million, compared to a net loss of $33 million in the year-ago period. Its EPS came in at $1.89, versus a $0.21 loss per share in the prior-year period. The company had $180.50 million in cash and cash equivalents as of December 31, 2022.
Analysts expect OLN’s EPS to improve 52.6% year-over-year to $2.35 for fiscal 2022 first quarter, ending March 31, 2022. It surpassed the consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $2.45 billion for the same fiscal year represents a 27.7% rise from the prior-year period.
Over the past month, the stock has gained 7.8% to close yesterday’s trading session at $51.51. In terms of non-GAAP forward PEG, OLN is currently trading at 0.04x, which is 96.4% lower than the industry average of 1.18x. OLN’s 5.32x forward EV/EBIT is 52.8% lower than the 11.27x industry average. The company’s EBITDA and EPS have grown at CAGRs of 27.4% and 59.8%, respectively, over the past three years.
OLN’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Value and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for OLN’s Growth, Stability, Sentiment, and Momentum here. OLN is ranked #18 in the same industry.
DOW shares were trading at $56.93 per share on Tuesday afternoon, down $2.03 (-3.44%). Year-to-date, DOW has gained 1.58%, versus a -9.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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