The widespread adoption of sustainability and digitalization, including Industry 4.0, are driving growth in the chemical sector. So, while investors could consider buying quality chemical stocks Arkema S.A. (ARKAY) and Fuchs SE (FUPBY), I think it might be wise to wait for a better entry point in DuPont de Nemours, Inc. (DD) and Givaudan SA (GVDNY).
Before we delve into the stock analysis, let us look at the current dynamics in the chemical industry.
This year, economists foresee an upturn in business for the chemical sector, especially for US petrochemical makers who benefit from inexpensive natural gas-based raw materials.
Moreover, the American Chemistry Council anticipates improved performance for the US chemical industry in 2024 compared to last year. It projects a 1.5% rise in chemical output, excluding pharmaceuticals, contrasting with the 1% decline observed in the previous year.
Besides, Industry 4.0, or the fourth industrial revolution, signifies a transformative era in the chemical manufacturing sector characterized by the integration of digital technologies and automation. It encompasses the interconnectivity of machines and devices, leveraging data analytics, artificial intelligence, robotics, and IoT to optimize production processes.
The global artificial intelligence (AI) in the chemical market is expected to reach $10.1 billion by 2030, with a 31.9% CAGR.
Furthermore, the specialty chemical market is experiencing robust growth driven by the increasing demand for high-performance materials across industries like automotive, construction, and electronics. Additionally, advancements in technology and innovation have fueled the development of novel specialty chemicals, expanding the market further.
The global specialty chemicals market is expected to increase at a CAGR of 4.1% until 2032.
Considering these conducive trends, let's take a look at the fundamentals of the four Chemicals stocks.
Stocks to Buy:
Arkema S.A. (ARKAY)
Based in France, ARKAY manufactures and sells specialty chemicals and advanced materials for the construction, packaging, automotive, electronics, food, and pharmaceutical industries worldwide. The company operates through four segments, Adhesive Solutions; Advanced Materials; Coating Solutions; and Intermediates.
ARKAY’s trailing-12-month cash per share of $26.98 is notably higher than the industry average of $1.54. Its trailing-12-month levered FCF margin of 8.05% is 75.1% higher than the 4.60% industry average.
On February 1st, 2024, ARKAY successfully launched its new Pebax® elastomer unit at the Serquigny plant in France. This unit can produce both bio-circular Pebax® Rnew® and classical Pebax® elastomer ranges, used in various applications including sports equipment and electronics.
The company pays $3.68 annually as dividends, which yields 3.5% on the current market price.
During the fiscal third quarter that ended September 30, 2023, ARKAY generated net sales of €2.33 billion ($2.51 billion). The company’s operating income came in at €182 million ($195.95 million. Adjusted net income came to €177 million ($190.57 million) and €2.38 per share.
As of September 30, 2023, ARKAY reported a net cash flow of €298 million ($320.84 million), compared to a loss of €1.04 billion ($1.11 billion) in the prior-year period.
Analysts expect ARKAY’s revenue and EPS to be $10.68 billion and $10.29 for the current year ending December 2024, representing a 3% and 13.2% year-over-year improvement.
The stock has soared 12.3% over the past three months, closing the last trading session at $105.06.
ARKAY’s POWR Ratings reflect this promising outlook. The stock has an overall grade of B, which equates to a Buy rating 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 a B grade for Growth, Value, Sentiment, and Stability. It is ranked #3 in the 84-stock Chemicals industry.
Click here to see ARKAY’s additional Momentum and Quality ratings.
Fuchs SE (FUPBY)
Headquartered in Mannheim, Germany, FUPBY develops, produces, and sells lubricants and related specialties in Europe, the Middle East, Africa, the Asia Pacific, and North and South America.
FUPBY’s trailing-12-month asset turnover ratio of 1.37x is 96.4% higher than the industry average of 0.70x. Its trailing-12-month levered FCF margin of 11.90% is 158.6% higher than the 4.60% industry average.
The company distributes $0.29 annually as dividends, which yields 2.74% on the current market price.
FUPBY’s sales revenue amounted to €876 million ($943.14 million) in the fiscal third quarter that ended September 30, 2023. Its gross profit grew 5.1% from the prior-year quarter to €288 million ($310.07 million), and its EBIT rose 13.4% year-over-year to €110 million ($118.43 million). Also, the company’s earnings per share increased 16% from the year-ago value to €0.58.
FUPBY’s revenue is expected to increase 7.2% year-over-year to $3.86 billion for the year ended December 2023. Its EPS is expected to grow 20% year-over-year to $0.59 for the same year. The company has exceeded the consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 11.4% over the nine months to close the last trading session at $10.74.
It’s no surprise that FUPBY has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Stability and a B for Quality. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated FUPBY for Growth, Momentum, Value, and Sentiment. and Get all FUPBY ratings here.
Stocks to Hold:
Givaudan SA (GVDNY)
Headquartered in Vernier, Switzerland. GVDNY manufactures, supplies, and sells fragrance, beauty, taste, and wellbeing products to the consumer goods industry. The company operates Fragrance & Beauty; and Taste & Wellbeing segments.
While GVDNY’s FUPBY’s trailing-12-month asset turnover ratio of 0.61x is 12.7% lower than the industry average of 0.70x, its trailing-12-month levered FCF margin of 14.45% is 214.03% higher than the 4.60% industry average.
The company pays an annual dividend of $1.58, which yields 1.88% on the current market price.
During the fiscal year 2023, GVDNY’s group sales decreased 2.8% year-over-year to CHF6.92 billion ($7.93 billion). Its net income rose 4.3% year-over-year to CHF893 million ($1.02 billion). It delivered an operating cash flow of CHF1.37 billion ($1.57 billion), up 45% year-over-year.
GVDNY’s EPS and revenue are expected to rise 8.8% and 1.7% year-over-year to $2.42 and $8.11 billion in the fiscal year 2024.
The stock rose 27.7% over the past six months, closing the last trading session at $84.02.
GVDNY’s POWR Ratings reflect its uncertain outlook. The stock has an overall rating of C, equating to a Neutral in our POWR Ratings system.
It also has a C grade for Sentiment. It is ranked #33 in the same industry.
To access GVDNY’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
DuPont de Nemours, Inc. (DD)
DD offers technology-driven materials and solutions across the United States, Canada, the Asia Pacific, Latin America, Europe, the Middle East, and Africa. Its operations are structured into Electronics & Industrial; Water & Protection; and Corporate & Other segments.
DD’s trailing-12-month asset turnover ratio of 0.30x is 56.8% lower than the industry average of 0.70x. But its trailing-12-month EBITDA margin of 23.66% is 33.7% higher than the 17.70% industry average.
On February 6, DD completed the $2 billion accelerated share repurchase transaction launched in September 2023.
DD pays an annual dividend of $1.52, which yields 2.17% on the prevailing price level, higher than its four-year average of 2.07%.
In the fiscal fourth quarter ended December 2023, DD’s net sales amounted to $2.90 billion, decreasing 7% year-over-year. While its operating EBITDA and adjusted EPS stood at $715 million and $0.87, its adjusted free cash flow rose 166% year-over-year to $501 million.
DD’s EPS and revenue are expected to fall 23% and 5% year-over-year to $0.65 and $2.81 billion in the fiscal first quarter ending March 2024.
The stock soared 1.1% intraday to close the last trading session at $66.48. However, the stock has declined 13.3% over the past month.
DD’s mixed outlook is apparent in its POWR Ratings. The stock has an overall rating of C, equating to a Neutral in our POWR Ratings system.
It has a C grade for Growth, Stability, and Quality. It is ranked #65 in the same industry.
In addition to the POWR Ratings stated above, one can access DD’s Value, Momentum, and Sentiment ratings here.
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GVDNY shares were trading at $83.74 per share on Thursday morning, down $0.28 (-0.33%). Year-to-date, GVDNY has gained 0.79%, versus a 4.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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