Huntsman Corporation HUN is benefiting from actions to grow its downstream businesses and acquisitions. The company also remains focused on generating healthy cash flows and has a strong balance sheet. However, it faces headwinds from higher input costs.
The company’s shares are down 19.2% over a year, compared with the 14.4% decline of its industry.
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Huntsman remains focused on growing its downstream specialty and formulation businesses and is shifting its MDI (methylene diphenyl diisocyanate) business from components to differentiated systems that typically have higher margins and lower volatility.
The company's Polyurethanes segment is well positioned for strong upside in the long term on the back of its focus on ramping up its high-value differentiated downstream portfolio. Substitution of MDI for less effective materials will remain a key driving factor for the MDI business. The Geismar MDI splitter project will expand the differentiated Polyurethanes business in the Americas.
Huntsman should also gain from significant synergies of acquisitions. Its strong liquidity and balance sheet leverage gives it adequate flexibility to continue to develop and expand its core businesses through acquisitions and internal investments. The recent acquisitions of CVC Thermoset and Gabriel Performance Products are significantly contributing to EBITDA in the Advanced Materials segment.
The company expects to deliver around $240 million of annualized cost optimization and acquisition run rate synergies by the end of 2023. It expects to achieve acquisitions-related run rate synergies of roughly $55 million by first-quarter 2023.
However, the company faces headwinds from higher raw material, logistics and supply-chain costs as witnessed in the second quarter of 2022. Supply disruptions have led to a rise in raw material costs. The unfavorable impacts from higher costs of raw materials are likely to continue in the third quarter. Higher costs, especially in Europe, are likely to remain a headwind in the third quarter. Volatility in natural gas prices in Europe is a concern. As such, higher raw material costs may impact margins.
Semiconductor shortages have also caused a slowdown in automotive production rates globally. The impacts of the chip shortage are likely to continue over the near term, leading to softer demand in automotive. Demand weakness in Europe is also expected to affect volumes in the third quarter.
Huntsman Corporation Price and Consensus
Huntsman Corporation price-consensus-chart | Huntsman Corporation Quote
Zacks Rank & Key Picks
Huntsman currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks worth considering in the basic materials space include Livent Corporation LTHM, Albemarle Corporation ALB and Sociedad Quimica y Minera de Chile S.A. SQM.
Livent, currently sporting a Zacks Rank #1 (Strong Buy), has a projected earnings growth rate of 667% for the current year. The Zacks Consensus Estimate for LTHM’s current-year earnings has been revised 9.5% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Livent’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average being 15.7%. LTHM has gained around 36% in a year.
Albemarle, sporting a Zacks Rank #1, has a projected earnings growth rate of 425.3% for the current year. The Zacks Consensus Estimate for ALB's current-year earnings has been revised 63.7% upward in the past 60 days.
Albemarle’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 24.2%, on average. ALB has gained around 25% in a year.
Sociedad has a projected earnings growth rate of 530.7% for the current year. The Zacks Consensus Estimate for SQM’s current-year earnings has been revised 18.8% upward in the past 60 days.
Sociedad has a trailing four-quarter earnings surprise of roughly 27.2%. SQM has rallied roughly 78% in a year. The company carries a Zacks Rank #2 (Buy).
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