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5 Chemical Stocks Set to Pull Off a Beat This Earnings Season
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Chemical companies’ second-quarter results are expected to reflect demand strength across major end-use industries and the benefits of strategic actions to counter significant headwinds from raw material cost inflation and supply-chain and logistical upheavals. The chemical industry has rebounded from the havoc wreaked by coronavirus, thanks to an upturn in demand across major end-use industries such as automotive, building & construction and electronics. The demand recovery has been backed by an uptick in global manufacturing and industrial activities.
The companies in this space that have reported June-quarter results have delivered strong earnings performance on the back of healthy end-market demand, notwithstanding the continued headwinds from higher raw material, energy and logistics costs. A number of chemical companies are yet to report their quarterly numbers, including Ingevity Corporation (NGVT - Free Report) , Cabot Corporation (CBT - Free Report) , Livent Corporation , Albemarle Corporation (ALB - Free Report) and Air Products and Chemicals, Inc. (APD - Free Report) .
How Have Things Shaped Up for These Companies?
Chemical companies are likely to have benefited from strong demand and higher prices in the June quarter. Demand for both commodity and specialty chemicals has been healthy in key end-use markets.
Demand from the automotive market remains healthy, despite the semiconductor shortage, which continues to affect automotive builds globally. Demand in construction, packaging and healthcare also remains strong. In particular, strength is being witnessed in residential construction globally.
The companies in this space are also seeing a recovery in demand across the aerospace and energy markets. A recovery in drilling activities on the back of a spike in oil prices has led to an uptick in demand in the energy space. Healthy end-market demand is expected to have boosted sales volumes and the top line of chemical companies.
However, chemical companies are expected to have faced margin pressure, resulting from raw material cost inflation as well as supply-chain and freight transportation disruptions. Supply chain disruptions have led to a spike in raw material costs. The Russia-Ukraine conflict and new lockdowns in China following a resurgence in COVID-19 infections have exacerbated pressure on the already-strained global supply chain. The impacts of supply-chain and logistic constraints are likely to reflect on the chemical companies’ performance.
Against this backdrop, chemical makers remain focused on 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. A number of companies in this space have also been taking price increase actions to counter the cost inflation and tightness in the supply chain. Chemical companies have been actively focused on acquisitions to diversify and drive growth. The benefits of these actions might reflect on their results.
Expectations for Q2
The chemical industry is housed within the broader Zacks Basic Materials sector. Basic Materials is among the sectors that are expected to deliver the strongest earnings growth in the second quarter. Overall earnings for the sector are projected to rise 14.6% on 17.8% higher revenues, per the latest Earnings Trends report. The projected growth, however, reflects a slowdown from a 58.6% rise in earnings on a 27.6% increase in revenues that was witnessed in the first quarter.
How to Pick Winners?
Given the large number of players operating in the chemical space, picking the right stocks is apparently not an easy task. But our proprietary methodology makes it fairly simple. One can trim down the list with the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Zacks Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter.
Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining stocks that have high chances of delivering earnings surprises in their next announcements. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as much as 70%.
Our Choices
Below, we list five chemical stocks that have the right combination of elements to pull off an earnings surprise this time around:
Ingevity has an Earnings ESP of +7.30% and a Zacks Rank #1. It is slated to report on Aug 2.
Ingevity surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.6%. The Zacks Consensus Estimate for second-quarter earnings stands at $1.68, which indicates a rise of 8.4% from the prior-year quarter. NGVT is likely to have benefited from higher demand and prices in the quarter. Its Performance Chemicals segment is expected to have gained from solid demand as well as higher selling prices in engineered polymers and industrial specialties. Strong demand for automotive carbon and honeycomb products is also expected to have driven results in the Performance Materials unit.
Cabot surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.2%. The consensus estimate for fiscal third-quarter earnings is pegged at $1.53, which suggests a rise of 13.3% from the prior-year quarter. CBT is likely to have benefited from strong underlying demand across its businesses. Higher volumes and favorable pricing are likely to have driven results in its Reinforcement Materials segment in the quarter to be reported. Its Performance Chemicals unit is also expected to have gained from price increases. Volumes are also likely to have been driven by growth in Battery Materials applications.
Livent has an Earnings ESP of +18.42% and a Zacks Rank #2. It is scheduled to report on Aug 2.
Livent surpassed the Zacks Consensus Estimate in three of the trailing four quarters while missed once. The company has a trailing-four quarter earnings surprise of roughly 34.8%, on average. The consensus estimate for second-quarter earnings is pegged at 30 cents, which suggests an increase of 650% from the prior-year quarter. LTHM is expected to have benefited from strong demand and high lithium pricing, aided by strong market conditions. Lithium demand is expected to have been by higher electric vehicle (EV) sales and battery installations for EVs. Higher realized pricing is expected to have driven the company’s top line and margins. Tight supply-demand conditions are likely to have supported prices in the quarter.
Albemarle has an Earnings ESP of +11.87% and carries a Zacks Rank #2. The company is scheduled to report on Aug 3.
Albemarle surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.5%. The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.94, indicating a rise of 230.3% from the prior-year quarter. ALB is likely to have benefited from higher volumes in its lithium business on continued recovery in global economic activities. Higher lithium prices are also likely to have supported its performance. Tight supply conditions and growing demand for electric vehicles are driving lithium prices. The company’s bromine business is also expected to have gained from strong demand and favorable pricing led by tight market conditions. Its cost-saving and productivity initiatives are also expected to have supported margins.
Air Products has an Earnings ESP of +0.29% and a Zacks Rank #3. It is slated to report on Aug 4.
Air Products surpassed the Zacks Consensus Estimate in three of the trailing four quarters, while missed once. The company has a trailing-four quarter negative earnings surprise of roughly 0.2%, on average. The consensus estimate for fiscal third-quarter earnings is pegged at $2.61, which suggests a rise of 13% from the prior-year quarter. APD is likely to have benefited from higher pricing and volumes. Higher merchant demand is expected to have driven its volumes. The positive impacts of its productivity actions are also likely to reflect on its performance.
Air Products and Chemicals, Inc. Price and EPS Surprise
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5 Chemical Stocks Set to Pull Off a Beat This Earnings Season
Chemical companies’ second-quarter results are expected to reflect demand strength across major end-use industries and the benefits of strategic actions to counter significant headwinds from raw material cost inflation and supply-chain and logistical upheavals. The chemical industry has rebounded from the havoc wreaked by coronavirus, thanks to an upturn in demand across major end-use industries such as automotive, building & construction and electronics. The demand recovery has been backed by an uptick in global manufacturing and industrial activities.
The companies in this space that have reported June-quarter results have delivered strong earnings performance on the back of healthy end-market demand, notwithstanding the continued headwinds from higher raw material, energy and logistics costs. A number of chemical companies are yet to report their quarterly numbers, including Ingevity Corporation (NGVT - Free Report) , Cabot Corporation (CBT - Free Report) , Livent Corporation , Albemarle Corporation (ALB - Free Report) and Air Products and Chemicals, Inc. (APD - Free Report) .
How Have Things Shaped Up for These Companies?
Chemical companies are likely to have benefited from strong demand and higher prices in the June quarter. Demand for both commodity and specialty chemicals has been healthy in key end-use markets.
Demand from the automotive market remains healthy, despite the semiconductor shortage, which continues to affect automotive builds globally. Demand in construction, packaging and healthcare also remains strong. In particular, strength is being witnessed in residential construction globally.
The companies in this space are also seeing a recovery in demand across the aerospace and energy markets. A recovery in drilling activities on the back of a spike in oil prices has led to an uptick in demand in the energy space. Healthy end-market demand is expected to have boosted sales volumes and the top line of chemical companies.
However, chemical companies are expected to have faced margin pressure, resulting from raw material cost inflation as well as supply-chain and freight transportation disruptions. Supply chain disruptions have led to a spike in raw material costs. The Russia-Ukraine conflict and new lockdowns in China following a resurgence in COVID-19 infections have exacerbated pressure on the already-strained global supply chain. The impacts of supply-chain and logistic constraints are likely to reflect on the chemical companies’ performance.
Against this backdrop, chemical makers remain focused on 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. A number of companies in this space have also been taking price increase actions to counter the cost inflation and tightness in the supply chain. Chemical companies have been actively focused on acquisitions to diversify and drive growth. The benefits of these actions might reflect on their results.
Expectations for Q2
The chemical industry is housed within the broader Zacks Basic Materials sector. Basic Materials is among the sectors that are expected to deliver the strongest earnings growth in the second quarter. Overall earnings for the sector are projected to rise 14.6% on 17.8% higher revenues, per the latest Earnings Trends report. The projected growth, however, reflects a slowdown from a 58.6% rise in earnings on a 27.6% increase in revenues that was witnessed in the first quarter.
How to Pick Winners?
Given the large number of players operating in the chemical space, picking the right stocks is apparently not an easy task. But our proprietary methodology makes it fairly simple. One can trim down the list with the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Zacks Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter.
Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining stocks that have high chances of delivering earnings surprises in their next announcements. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as much as 70%.
Our Choices
Below, we list five chemical stocks that have the right combination of elements to pull off an earnings surprise this time around:
Ingevity has an Earnings ESP of +7.30% and a Zacks Rank #1. It is slated to report on Aug 2.
Ingevity surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.6%. The Zacks Consensus Estimate for second-quarter earnings stands at $1.68, which indicates a rise of 8.4% from the prior-year quarter. NGVT is likely to have benefited from higher demand and prices in the quarter. Its Performance Chemicals segment is expected to have gained from solid demand as well as higher selling prices in engineered polymers and industrial specialties. Strong demand for automotive carbon and honeycomb products is also expected to have driven results in the Performance Materials unit.
Ingevity Corporation Price and EPS Surprise
Ingevity Corporation price-eps-surprise | Ingevity Corporation Quote
Cabot has an Earnings ESP of +0.16% and carries a Zacks Rank #1. The company is scheduled to report on Aug 8. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cabot surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.2%. The consensus estimate for fiscal third-quarter earnings is pegged at $1.53, which suggests a rise of 13.3% from the prior-year quarter. CBT is likely to have benefited from strong underlying demand across its businesses. Higher volumes and favorable pricing are likely to have driven results in its Reinforcement Materials segment in the quarter to be reported. Its Performance Chemicals unit is also expected to have gained from price increases. Volumes are also likely to have been driven by growth in Battery Materials applications.
Cabot Corporation Price and EPS Surprise
Cabot Corporation price-eps-surprise | Cabot Corporation Quote
Livent has an Earnings ESP of +18.42% and a Zacks Rank #2. It is scheduled to report on Aug 2.
Livent surpassed the Zacks Consensus Estimate in three of the trailing four quarters while missed once. The company has a trailing-four quarter earnings surprise of roughly 34.8%, on average. The consensus estimate for second-quarter earnings is pegged at 30 cents, which suggests an increase of 650% from the prior-year quarter. LTHM is expected to have benefited from strong demand and high lithium pricing, aided by strong market conditions. Lithium demand is expected to have been by higher electric vehicle (EV) sales and battery installations for EVs. Higher realized pricing is expected to have driven the company’s top line and margins. Tight supply-demand conditions are likely to have supported prices in the quarter.
Livent Corporation Price and EPS Surprise
Livent Corporation price-eps-surprise | Livent Corporation Quote
Albemarle has an Earnings ESP of +11.87% and carries a Zacks Rank #2. The company is scheduled to report on Aug 3.
Albemarle surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.5%. The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.94, indicating a rise of 230.3% from the prior-year quarter. ALB is likely to have benefited from higher volumes in its lithium business on continued recovery in global economic activities. Higher lithium prices are also likely to have supported its performance. Tight supply conditions and growing demand for electric vehicles are driving lithium prices. The company’s bromine business is also expected to have gained from strong demand and favorable pricing led by tight market conditions. Its cost-saving and productivity initiatives are also expected to have supported margins.
Albemarle Corporation Price and EPS Surprise
Albemarle Corporation price-eps-surprise | Albemarle Corporation Quote
Air Products has an Earnings ESP of +0.29% and a Zacks Rank #3. It is slated to report on Aug 4.
Air Products surpassed the Zacks Consensus Estimate in three of the trailing four quarters, while missed once. The company has a trailing-four quarter negative earnings surprise of roughly 0.2%, on average. The consensus estimate for fiscal third-quarter earnings is pegged at $2.61, which suggests a rise of 13% from the prior-year quarter. APD is likely to have benefited from higher pricing and volumes. Higher merchant demand is expected to have driven its volumes. The positive impacts of its productivity actions are also likely to reflect on its performance.
Air Products and Chemicals, Inc. Price and EPS Surprise
Air Products and Chemicals, Inc. price-eps-surprise | Air Products and Chemicals, Inc. Quote
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