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Methanex (MEOH) Up 62% in a Year: What's Behind the Rally?

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Methanex Corporation (MEOH - Free Report) is one of the stocks in the Basic Material sector that has been on a healthy growth trajectory. The stock has been performing well lately on the back of healthy methanol demand and pricing fundamentals. Methanex has witnessed its shares surge around 62% over a year. The company has outperformed its industry’s gain of 12% by a significant margin.



Methanex, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $5.6 billion and average volume of shares traded in the last three months is around 730.2K.

Let’s delve deeper to check out the factors that are driving this chemical stock.

Upbeat Outlook

Methanex’s Chile IV plant is progressing with its restart process and is expected to be complete by third-quarter 2018. With a committed revolving credit facility, strong balance sheet and healthy cash-generation capability, the company believes that it is well positioned to meet its financial commitments, execute growth opportunities and return excess cash to shareholders through dividends and share repurchases.

Driving Factors

Methanex is poised to gain from healthy demand fundamentals for methanol. Demand has been driven by both traditional derivatives and energy-related applications in Asia, particularly in China. Per the company, global demand for methanol increased 4% year over year in the first quarter and is expected to remain healthy in 2018.

Moreover, higher methanol prices are boosting the company’s revenues and margins. In the first quarter, the company’s average realized prices for methanol went up roughly 10.3% year over year, while the same rose 14.9% sequentially.

The company’s profits rose around 28% year over year in the first quarter. Revenues also increased roughly 18.8% year over year to $962 million in the quarter on the back of higher prices.

Methanex also remains committed to boost shareholder returns by leveraging its solid liquidity position. Methanex announced a 10% hike in its quarterly dividend to 33 cents per share earlier this year. The company returned $66 million in cash to shareholders in the form of dividend and share repurchases during the first quarter. It spent $38 million to buy back roughly 650,000 shares in the first quarter.

Strong Growth Prospects

Positive estimate revisions reflect optimism in the company's potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. In the past 30 days, the Zacks Consensus Estimate for second-quarter 2018 moved up 3.2% to $1.59.
 
The Zacks Consensus Estimate for second-quarter 2018 reflects a year-over-year growth of 87.1%. For 2018, earnings are expected to rise 27.6% year over year. The company has an estimated long-term earnings growth rate of 15%, higher than the industry average of 9.8%.

Methanex Corporation Price and Consensus

Stocks to Consider

Stocks worth considering in the basic materials space include FMC Corporation (FMC - Free Report) , Celanese Corporation (CE - Free Report) and The Chemours Company (CC - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

FMC Corp has an expected long-term earnings growth rate of 16.4%.  Its shares have gained around 19.6% over a year.

Celanese has an expected long-term earnings growth rate of 8.9%.  Its shares have moved up around 31.8% over a year.

Chemours has an expected long-term earnings growth rate of 15.5%.  Its shares have gained around 20.3% over a year.

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