Several geopolitical and economic reasons dampened the chemical industry’s performance last year. However, given the extensive use and relevance of chemicals as inputs for several sectors, the industry is poised to grow with recovering industrial activities.
Given this backdrop, I think chemical stocks Brenntag SE (BNTGY), Nitto Denko Corporation (NDEKY), CSW Industrials, Inc. (CSWI), and American Vanguard Corporation (AVD) are wise additions to one’s portfolio now.
Let us briefly discuss what’s shaping the chemical industry’s prospects before digging deeper into the fundamentals of these stocks.
The chemical industry’s end products range from consumer essentials to inputs for manufacturing and construction activities. Hence, its relevance is exceptional.
The U.S. chemical industry is responsible for more than a quarter of the U.S. GDP, and it supports the production of almost all commercial and household goods and is essential to economic growth.
To keep pace in the global biomanufacturing race, the U.S. government’s initiative to boost domestic manufacturing of plastics, chemicals, foods, fuels, and other products using biological processes could fortify the chemical industry.
ABI Research forecasts the chemical industry to spend $4.4 billion on digital transformation technologies in 2023, and by 2031, the industry will spend $7.4 billion on the digitalization of its plants, led by the Asia-Pacific region. The global chemical market is anticipated to grow at a CAGR of 7.8% to $6.85 trillion in 2027.
Given the tailwinds, chemical stocks BNTGY, NDEKY, CSWI, and AVD, with strong fundamentals, could be wise portfolio additions next month.
Brenntag SE (BNTGY)
Headquartered 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.
On June 29, BNTGY announced a partnership with Coöperatie Koninklijke Avebe U.A. (Royal Avebe), an international farmer cooperative producing potato starch and protein.
The partnership expands the portfolio of supply partners of BNTGY Specialties, offering a broad portfolio of innovative and sustainable products and services to customers around the world.
BNTGY’s trailing-12-month cash from operations of $1.43 billion is 558.3% higher than the industry average of $217.77 million. Its trailing-12-month ROCE, ROTC, and ROTA of 19.72%, 11.25%, and 7.73% are 41.4%, 60.8%, and 51.7% higher than the industry averages of 13.94%, 7%, and 5.09%, respectively.
BNTGY’s revenue has grown 14.8% and 10.6% CAGRs, over the past three and five years, respectively. Its EBITDA and net income grew at CAGRs of 20.4% and 21.5%, respectively, over the past three years.
BNTGY’s net revenues for the fiscal first quarter that ended March 31, 2023, came in at €4.53 billion ($4.93 billion), while its operating gross profit grew marginally year-over-year to €1.05 billion ($1.14 billion). Its operating EBITA stood at €345.10 million ($375.84 million).
Moreover, profit attributable to BNTGY shareholders and earnings per share came in at €215.90 million ($235.13 million) and €1.40, respectively. For the same quarter, the company’s free cash flow increased 822.4% year-over-year to €449.20 million ($489.21 million).
BNTGY’s revenue for the fiscal second quarter ending June 2023 is expected to increase 1% year-over-year to $5.27 billion. Moreover, its revenue for the fiscal year ending December 2023 is expected to be $20.54 billion, up marginally year-over-year.
The stock has gained 19.5% over the past six months to close the last trading session at $15.23. Over the past three months, the stock gained 3.3%.
BNTGY’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. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Momentum and Stability and a B for Value. Within the Chemicals industry, it is ranked #17 out of 84 stocks.
Click here for BNTGY’s additional POWR ratings (Growth, Sentiment, and Quality).
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.
As of May 31, 2023, NDEKY repurchased 4,357,200 shares, and the total repurchased amount was approximately ¥37,99 billion ($262.82 million).
NDEKY pays a $0.84 per share dividend annually, translating to a 2.24% yield on the current price. Its four-year average dividend yield is 2.91%.
NDEKY’s trailing-12-month gross profit margin of 36.3% is 30.4% higher than the 27.86% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 12.67%, 10.66%, and 9.46% are 18.6%, 75.2%, and 102.1% higher than the industry averages of 10.68%, 6.08%, and 4.68%, respectively.
NDEKY’s revenue has grown 7.8% and 1.6% CAGRs, over the past three and five years, respectively. Its EBITDA and net income grew at CAGRs of 20.7% and 32.3%, respectively, over the past three years.
For the fiscal year which ended on March 31, 2023, NDEKY’s revenue increased 8.9% year-over-year to ¥929.04 billion ($6.43 billion). Its gross profit rose 11.6% from the year-ago value to ¥337.44 billion ($2.33 billion), while its operating income increased 11.3% from the year-ago value to ¥147.17 billion ($1.02 billion).
Net income and earnings per share attributable to owners of the parent company amounted to ¥109.26 billion ($755.73 million) and ¥738.48, representing increases of 12.4% and 12.6% from the prior-year period, respectively.
Analysts expect NDEKY’s revenue in the fiscal year ending March 2024 to increase 58.3% year-over-year to $6.44 billion.
The stock has gained 25.3% over the past six months to close the last trading session at $36.56. Over the past three months, the stock gained 13%.
NDEKY’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 an A grade for Quality and B for Value and Stability. Within the Chemicals industry, it is ranked #9.
To see NDEKY’s ratings for Growth, Momentum, and Sentiment, click here.
CSW Industrials, Inc. (CSWI)
CSWI operates as a diversified industrial company worldwide. It operates through three segments: Contractor Solutions; Engineered Building Solutions; and Specialized Reliability Solutions.
On April 14, CSWI declared a regular quarterly dividend of $0.19 per share, which was paid to the shareholders on May 12. This represents an increase of $0.02 per share, or approximately 12%, as compared to the declared dividend in the prior quarter.
It pays a $0.76 per share dividend annually, which translates to a 0.47% yield on the current price. Its four-year average dividend yield is 0.54%. The company’s dividend payout has grown at a 9% CAGR over the past three years.
CSWI’s trailing-12-month gross profit margin of 41.99% is 40.7% higher than the 29.83% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 19.39%, 10.38%, and 9.24% are 39.1%, 48.3%, and 81.5% higher than the industry averages of 13.94%, 7%, and 5.09%, respectively.
CSWI’s revenue has grown 25.2% and 18.4% CAGRs, over the past three and five years, respectively. Its EBITDA and net income grew at CAGRs of 28.7% and 28.3%, respectively, over the past three years.
CSWI’s net revenues for the fiscal fourth quarter that ended March 31, 2023, increased 12.9% year-year-over-year to $195.69 million, while its gross profit grew 18% year-over-year to $85.35 million. Its operating income stood at $39.77 million, up 37.4% year-over-year.
Moreover, its adjusted net income attributable to CSWI increased 46.7% year-over-year to $27.06 million, while its adjusted net income per share came in at $1.74, representing a 48.7% increase over the prior-year quarter.
CSWI’s revenue and EPS for the fiscal first quarter ending June 2023 are expected to increase 6.8% and 2.4% year-over-year to $213.50 million and $1.93, respectively. It surpassed its consensus EPS and revenue estimates in three of the trailing four quarters, which is promising.
Over the past year, the stock has gained 61.9% to close the last trading session at $163.81. The stock has gained 20.3% over the past three months.
CSWI’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Momentum and Sentiment and a B for Quality. It is ranked #8 in the same industry.
Beyond what we have stated above, we have also given CSWI grades for Growth, Value, and Stability. Click here to access all the ratings.
American Vanguard Corporation (AVD)
AVD is a diversified specialty and agricultural products company that develops and markets products for crop protection and management, turf and ornamentals management, and public and animal health. Its products include insecticides, fungicides, herbicides, soil health, plant nutrition, molluscicides, and soil fumigants, which are marketed in liquid, powder, and granular forms.
On May 25, AVD announced that its Board of Directors approved a program for repurchasing up to $15 million of common stock. AVD’s Chairman and CEO, Eric Wintemute, stated, "This authorization to repurchase shares reflects the strong degree of confidence that our Board of Directors has in the strength of AVD’s core business, as well as our strategic growth initiatives.”
In June, AVD declared a quarterly dividend of $0.03 per share of its common stock for distribution on July 14, 2023. It pays a $0.12 per share dividend annually, which translates to a 0.68% yield on the current price.
Its four-year average dividend yield is 0.44%. The company’s dividend payouts have grown at 24.2% and 10.4% CAGRs over the past three and five years, respectively.
AVD’s trailing-12-month gross profit margin of 39.07% is 40.2% higher than the 27.86% industry average. Also, its trailing-12-month levered FCF margin of 5.79% is 62.8% higher than the industry average of 3.55%.
AVD’s revenue has grown 8% and 8.5% CAGRs, over the past three and five years, respectively. Its EBITDA and net income grew at CAGRs of 7.7% and 23.8%, respectively, over the past three years.
For the fiscal first quarter that ended March 31, 2023, AVD’s net sales came in at $124.89 million, while its gross profit stood at $38.54 million. The company’s net income and earnings per common share were $1.92 million and $0.07, respectively.
In addition, AVD’s net cash provided by financing activities increased 16.9% year-over-year to $43.78 million, while cash and cash equivalents for the same quarter stood at $19.57 million, up 9.7% from the prior-year quarter.
Analysts expect AVD’s revenue and EPS for the fiscal second quarter (ending June 2023) to increase 11.2% and 39.1% year-over-year to $164.70 million and $0.32, respectively. For the fiscal year ending December 2023, the company’s revenue and EPS are expected to come at $643.20 million and $1.04, up 5.5% and 13% year-over-year, respectively.
Over the past month, AVD has gained 3.2% to close the last trading session at $17.83. The stock has gained 1.3% intraday.
Unsurprisingly, AVD has an overall B rating, equating to a Buy in the POWR Ratings system.
It has a B grade for Value, Sentiment, and Quality. In the Chemicals industry, it is ranked #11.
Click here to view the other ratings of AVD for Growth, Momentum, and Stability.
What To Do Next?
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BNTGY shares were unchanged in premarket trading Friday. Year-to-date, BNTGY has gained 20.01%, versus a 16.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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