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Methanex (MEOH) Up 26% in 6 Months: What's Behind the Rally?

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Shares of Methanex Corporation (MEOH - Free Report) have shot up around 26% over the past six months, significantly outperforming the industry’s decline of roughly 4%.

Methanex, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $6 billion and average volume of shares traded in the last three months was around 430K. The company has an expected long-term earnings per share growth rate of 15%, higher than the industry average of 11.3%.  

Let’s take a look into the factors that are driving this chemical company.



 

Driving Factors

Forecast-topping second-quarter earnings performance and strong demand and pricing fundamentals for methanol have contributed to the run up in Methanex’s shares. Demand for methanol 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 second quarter of 2018 and is expected to remain healthy in 2018.

Moreover, higher methanol prices are boosting the company’s revenues and margins. In the second quarter, the company’s average realized prices for methanol climbed roughly 24% year over year.

The company’s profits jumped around 32% year over year to $111 million or $1.36 per share in the second quarter. Adjusted earnings of $1.75 per share topped the Zacks Consensus Estimate of $1.70. Revenues also surged roughly 42% year over year to $950 million in the quarter on the back of higher prices.

Moreover, Methanex remains on track with its plans of capitalizing on near-term growth opportunities in Chile. Methanex’s Chile IV plant is progressing with its restart process which is expected to be complete by the end of 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.

Earnings estimates for Methanex have also moved north over the past two month, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 13.5% to $7.30. The Zacks Consensus Estimate for third-quarter 2018 has also shot up 101% over the same timeframe to $2.01.

The Zacks Consensus Estimate for earnings for 2018 reflects an expected year-over-year growth of 55%. For third-quarter 2018, earnings are expected to rise a whopping 235% year over year.

Methanex Corporation Price and Consensus

 

Methanex Corporation Price and Consensus | Methanex Corporation Quote

Stocks to Consider

Stocks worth considering in the basic materials space include Celanese Corporation (CE - Free Report) , Huntsman Corporation (HUN - Free Report) and Air Products and Chemicals, Inc. (APD - Free Report) .

Celanese has an expected long-term earnings growth rate of 10% and a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 18% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntsman has an expected long-term earnings growth rate of 8.5% and a Zacks Rank #1. The company’s shares have rallied around 22% in a year.

Air Products has an expected long-term earnings growth rate of 16.2% and carries a Zacks Rank #2 (Buy). Its shares have gained roughly 14% over a year.

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