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Zacks Industry Outlook Highlights: Celanese, Daqo New Energy, AdvanSix and Flexible Solutions International
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For Immediate Release
Chicago, IL – December 21, 2021 – Today, Zacks Equity Research discusses Specialty Chemical, including Celanese Corp. (CE - Free Report) , Daqo New Energy Corp. (DQ - Free Report) , AdvanSix Inc. (ASIX - Free Report) and Flexible Solutions International Inc. (FSI - Free Report) .
The Zacks Chemicals Specialty industry is facing headwinds from the softness in the automotive sector, a key market, due to the chip crunch. The rapid spread of the Omicron variant may also disrupt business activities and impact demand over the near term. Margins of companies in this space also remain under pressure due to elevated supply chain, logistics and input costs.
Industry players like Celanese, Daqo New Energy, AdvanSix and Flexible Solutions International are banking on strategic measures, including operating cost reductions to tide over the challenging environment.
About the Industry
The Zacks Chemicals Specialty industry consists of manufacturers of specialty chemical products for a host of end-use markets such as textile, paper, automotive, electronics, personal care, energy, construction, food & beverages and agriculture. These chemicals (including catalysts, surfactants, specialty polymers, coating additives, pesticides and oilfield chemicals) are used based on their performance and have a specific purpose.
Specialty chemicals can be single molecules or a combination of molecules referred to as formulations, and they provide a vast range of effects on which various industries rely upon. Their compositions significantly influence the performance of the finished products. Specialty chemicals have applications in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics.
What's Shaping the Future of the Chemical Specialty Industry?
Input Cost Pressure a Concern: Specialty chemical makers are facing headwinds from raw material cost inflation and supply chain disruptions. The closure of a large swath of factories to stem the spread of the COVID-19 outbreak disrupted the global supply chain. This has affected the availability of key raw materials for the chemical specialty industry. Some of the companies are also facing challenges from elevated logistics costs.
The devastating winter storm in the U.S. Gulf Coast also disrupted the supply of feedstocks. The supply crunch was worsened by Hurricane Ida. Plant shutdowns associated with Ida further squeezed the supply of major raw materials and pushed up their prices. The lingering impacts of Ida and supply chain bottlenecks are expected to continue over the short-haul and exert pressure on margins of chemical specialty companies.
Demand Headwinds from Auto Slowdown, Omicron: Companies in the chemical specialty space face challenges from a slowdown in demand in the automotive space, a major market. The semiconductor shortage is affecting automotive production globally, which may create a short-term demand headwind. The chip crunch has led to reduced automotive builds around the world, causing a slowdown in demand for specialty chemicals.
The construction sector has recovered on the restart of projects that were stalled earlier. However, demand in this market is not expected to return to the pre-pandemic levels in the near term. Weaker recovery in drilling activities is also hurting the energy space. The pandemic is also showing no sign of abating. The rapid spread of the highly contagious Omicron variant of coronavirus may impact business activities and lead to a slowdown in demand over the short term.
Strategic Actions to Aid Results: The companies in this space are executing a raft of self-help measures — including cost-cutting and productivity improvement, expansion into high-growth markets, restructuring, operational efficiency improvement, and actions to strengthen the balance sheet and boost cash flows — in a bid to stay afloat amid the prevailing supply chain and pandemic-induced headwinds. Notably, the industry participants are aggressively implementing actions to cut costs. The measures are likely to help the companies sail through the ongoing challenges.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Chemicals Specialty industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #182, which places it at the bottom 28% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a gloomy near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Despite the industry’s downbeat near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Underperforms S&P 500
The Zacks Chemicals Specialty industry has underperformed the Zacks S&P 500 composite over the past year while performing in line with the broader Zacks Basic Materials sector over the same period.
The industry has gained 3.2% over this period compared with the S&P 500’s rise of 25.5% and the broader sector’s increase of 3.2%.
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 26.72X, above the S&P 500’s 15.53X and the sector’s 5.84X.
Over the past five years, the industry has traded as high as 39.66X, as low as 15.29X, with a median of 24X.
4 Chemical Specialty Stocks to Keep a Close Eye On
Daqo New Energy: China-based Daqo New Energy, sporting a Zacks Rank #1 (Strong Buy), is a leading producer of high-purity polysilicon. The company is expected to gain from higher production and sales volumes for polysilicon. Higher polysilicon average selling prices driven by strong downstream demand are also expected to boost its sales and margins. DQ’s facilities are running with increased efficiency, which is likely to drive production volumes. The company’s efforts to improve its cost structure are also likely to lend support to its margins. Its energy efficiency efforts and enhanced manufacturing efficiencies are contributing to lower costs.
Daqo New Energy has expected earnings growth of 615.7% for the current year. The Zacks Consensus Estimate for current-year earnings for DQ has been revised 6.4% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
AdvanSix: New Jersey-based AdvanSix is a manufacturer of nylon 6 resin, chemical intermediates and ammonium sulfate fertilizer. The company is expected to benefit from improved end-market conditions and growth of its differentiated products. ASIX is seeing a recovery in demand across a number of markets including automotive, building & construction, electronics and packaging. Higher demand is expected to drive its volumes. Strong agricultural industry fundamentals also bode well.
AdvanSix, carrying a Zacks Rank #2 (Buy), has expected earnings growth of 194.5% for the current year. The consensus estimate for current-year earnings for ASIX has been revised 5.9% upward over the last 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters at an average of 46.9%.
Flexible Solutions: Canada-based Flexible Solutions specializes in biodegradable, water-soluble products as well as energy and water conservation products for drinking water, agriculture, industrial markets. The company remains committed to explore new opportunities in applications such as detergent, water treatment, oil field extraction and agriculture to further grow sales in the NanoChem division, which accounts for more than half of the company’s revenues. FSI should also benefit from its strategic investments in Lygos for sustainable aspartic acid. Its cash resources are also expected to be adequate to meet its cash flow requirements and future commitments.
Flexible Solutions, carrying a Zacks Rank #2, has expected earnings growth of 58.3% for the current year. The Zacks Consensus Estimate for earnings for the current year for FSI has been revised 2.7% upward over the last 60 days.
Celanese: Texas-based Celanese is a leading producer of differentiated chemistry solutions and specialty materials used in most major industries and consumer applications. It is expected to benefit from its productivity measures, investments in high-return organic projects and strategic acquisitions. The company is also seeing a recovery in demand across most of its end markets. CE also continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies.
Celanese, carrying a Zacks Rank #3 (Hold), has expected earnings growth of 139.5% for the current year. The consensus estimate for earnings for the current year for CE has been revised 6.8% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 12.7%.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Celanese, Daqo New Energy, AdvanSix and Flexible Solutions International
For Immediate Release
Chicago, IL – December 21, 2021 – Today, Zacks Equity Research discusses Specialty Chemical, including Celanese Corp. (CE - Free Report) , Daqo New Energy Corp. (DQ - Free Report) , AdvanSix Inc. (ASIX - Free Report) and Flexible Solutions International Inc. (FSI - Free Report) .
Link: https://www.zacks.com/commentary/1840891/4-chemical-specialty-stocks-to-escape-industry-headwinds
The Zacks Chemicals Specialty industry is facing headwinds from the softness in the automotive sector, a key market, due to the chip crunch. The rapid spread of the Omicron variant may also disrupt business activities and impact demand over the near term. Margins of companies in this space also remain under pressure due to elevated supply chain, logistics and input costs.
Industry players like Celanese, Daqo New Energy, AdvanSix and Flexible Solutions International are banking on strategic measures, including operating cost reductions to tide over the challenging environment.
About the Industry
The Zacks Chemicals Specialty industry consists of manufacturers of specialty chemical products for a host of end-use markets such as textile, paper, automotive, electronics, personal care, energy, construction, food & beverages and agriculture. These chemicals (including catalysts, surfactants, specialty polymers, coating additives, pesticides and oilfield chemicals) are used based on their performance and have a specific purpose.
Specialty chemicals can be single molecules or a combination of molecules referred to as formulations, and they provide a vast range of effects on which various industries rely upon. Their compositions significantly influence the performance of the finished products. Specialty chemicals have applications in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics.
What's Shaping the Future of the Chemical Specialty Industry?
Input Cost Pressure a Concern: Specialty chemical makers are facing headwinds from raw material cost inflation and supply chain disruptions. The closure of a large swath of factories to stem the spread of the COVID-19 outbreak disrupted the global supply chain. This has affected the availability of key raw materials for the chemical specialty industry. Some of the companies are also facing challenges from elevated logistics costs.
The devastating winter storm in the U.S. Gulf Coast also disrupted the supply of feedstocks. The supply crunch was worsened by Hurricane Ida. Plant shutdowns associated with Ida further squeezed the supply of major raw materials and pushed up their prices. The lingering impacts of Ida and supply chain bottlenecks are expected to continue over the short-haul and exert pressure on margins of chemical specialty companies.
Demand Headwinds from Auto Slowdown, Omicron: Companies in the chemical specialty space face challenges from a slowdown in demand in the automotive space, a major market. The semiconductor shortage is affecting automotive production globally, which may create a short-term demand headwind. The chip crunch has led to reduced automotive builds around the world, causing a slowdown in demand for specialty chemicals.
The construction sector has recovered on the restart of projects that were stalled earlier. However, demand in this market is not expected to return to the pre-pandemic levels in the near term. Weaker recovery in drilling activities is also hurting the energy space. The pandemic is also showing no sign of abating. The rapid spread of the highly contagious Omicron variant of coronavirus may impact business activities and lead to a slowdown in demand over the short term.
Strategic Actions to Aid Results: The companies in this space are executing a raft of self-help measures — including cost-cutting and productivity improvement, expansion into high-growth markets, restructuring, operational efficiency improvement, and actions to strengthen the balance sheet and boost cash flows — in a bid to stay afloat amid the prevailing supply chain and pandemic-induced headwinds. Notably, the industry participants are aggressively implementing actions to cut costs. The measures are likely to help the companies sail through the ongoing challenges.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Chemicals Specialty industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #182, which places it at the bottom 28% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a gloomy near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Despite the industry’s downbeat near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Underperforms S&P 500
The Zacks Chemicals Specialty industry has underperformed the Zacks S&P 500 composite over the past year while performing in line with the broader Zacks Basic Materials sector over the same period.
The industry has gained 3.2% over this period compared with the S&P 500’s rise of 25.5% and the broader sector’s increase of 3.2%.
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 26.72X, above the S&P 500’s 15.53X and the sector’s 5.84X.
Over the past five years, the industry has traded as high as 39.66X, as low as 15.29X, with a median of 24X.
4 Chemical Specialty Stocks to Keep a Close Eye On
Daqo New Energy: China-based Daqo New Energy, sporting a Zacks Rank #1 (Strong Buy), is a leading producer of high-purity polysilicon. The company is expected to gain from higher production and sales volumes for polysilicon. Higher polysilicon average selling prices driven by strong downstream demand are also expected to boost its sales and margins. DQ’s facilities are running with increased efficiency, which is likely to drive production volumes. The company’s efforts to improve its cost structure are also likely to lend support to its margins. Its energy efficiency efforts and enhanced manufacturing efficiencies are contributing to lower costs.
Daqo New Energy has expected earnings growth of 615.7% for the current year. The Zacks Consensus Estimate for current-year earnings for DQ has been revised 6.4% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
AdvanSix: New Jersey-based AdvanSix is a manufacturer of nylon 6 resin, chemical intermediates and ammonium sulfate fertilizer. The company is expected to benefit from improved end-market conditions and growth of its differentiated products. ASIX is seeing a recovery in demand across a number of markets including automotive, building & construction, electronics and packaging. Higher demand is expected to drive its volumes. Strong agricultural industry fundamentals also bode well.
AdvanSix, carrying a Zacks Rank #2 (Buy), has expected earnings growth of 194.5% for the current year. The consensus estimate for current-year earnings for ASIX has been revised 5.9% upward over the last 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters at an average of 46.9%.
Flexible Solutions: Canada-based Flexible Solutions specializes in biodegradable, water-soluble products as well as energy and water conservation products for drinking water, agriculture, industrial markets. The company remains committed to explore new opportunities in applications such as detergent, water treatment, oil field extraction and agriculture to further grow sales in the NanoChem division, which accounts for more than half of the company’s revenues. FSI should also benefit from its strategic investments in Lygos for sustainable aspartic acid. Its cash resources are also expected to be adequate to meet its cash flow requirements and future commitments.
Flexible Solutions, carrying a Zacks Rank #2, has expected earnings growth of 58.3% for the current year. The Zacks Consensus Estimate for earnings for the current year for FSI has been revised 2.7% upward over the last 60 days.
Celanese: Texas-based Celanese is a leading producer of differentiated chemistry solutions and specialty materials used in most major industries and consumer applications. It is expected to benefit from its productivity measures, investments in high-return organic projects and strategic acquisitions. The company is also seeing a recovery in demand across most of its end markets. CE also continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies.
Celanese, carrying a Zacks Rank #3 (Hold), has expected earnings growth of 139.5% for the current year. The consensus estimate for earnings for the current year for CE has been revised 6.8% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 12.7%.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.