Back to top

Image: Bigstock

Huntsman (HUN) Gains on Downstream Expansion, Acquisitions

Read MoreHide Full Article

Huntsman Corporation (HUN - Free Report) is benefiting from actions to grow its downstream businesses and acquisitions. However, it faces headwinds from demand softness and pricing pressure.

The company’s shares are down 3.1% over a year, compared with 3.5% rise of its industry.


Zacks Investment Research
Image Source: Zacks Investment Research

Huntsman is expanding 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.

Moreover, HUN should benefit 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 acquisitions of CVC Thermoset and Gabriel Performance Products are contributing to EBITDA in the Advanced Materials segment.

Huntsman remains on track with its cost realignment and synergy plans and expects to achieve around $280 million of annualized run rate savings by the end of 2023. Its European restructuring program is expected to deliver roughly $40 million of additional savings by the end of this year.

However, Huntsman is exposed to challenges from the demand weakness. Demand conditions in Europe deteriorated due to high levels of natural gas prices. Demand in China is also being impacted by reduced economic growth resulting from the pandemic-led restrictions and lower construction activities. While demand conditions have improved somewhat of late in these regions, the lingering impacts of lower year-over-year demand are likely to weigh on volumes in the third quarter of 2023. Soft demand in the Americas is also impacting polyurethanes volumes. Weaker demand in infrastructure coatings and industrial adhesives markets is also expected to continue to hurt volumes in Advanced Materials.

Huntsman also faces headwinds from pricing pressure as witnessed in the last reported quarter. Lower selling prices across Polyurethanes and Performance Products segments weighed on its results in the quarter. Competitive pricing is affecting both segments. MDI prices are being hurt by competitive pricing pressure. Weaker prices are likely to continue to impact these segments in the third quarter.



Zacks Rank & Key Picks

Huntsman currently has a Zacks Rank #3 (Hold).

Better-ranked stocks worth a look in the basic materials space include Carpenter Technology Corporation (CRS - Free Report) Hawkins, Inc. (HWKN - Free Report) and Alamos Gold Inc. (AGI - Free Report) .

The Zacks Consensus Estimate for current fiscal-year earnings for CRS is currently pegged at $3.48, implying year-over-year growth of 205.3%. Carpenter Technology currently carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Carpenter Technology has a trailing four-quarter earnings surprise of roughly 10%, on average. The stock has rallied around 71% in a year.

Hawkins currently carrying a Zacks Rank #1. It has a projected earnings growth rate of 18.9% for the current year.

Hawkins has a trailing four-quarter earnings surprise of roughly 25.6%, on average. HWKN shares are up around 47% in a year.

Alamos Gold currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for AGI's current-year earnings has been revised 13.2% upward over the past 60 days.

The Zacks Consensus Estimate for current fiscal-year earnings for Alamos Gold is currently pegged at 43 cents, implying year-over-year growth of 53.6%. AGI shares have gained around 59% in a year.

Published in