LyondellBasell Industries N.V.'s (LYB - Free Report) stock looks promising at the moment. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
Let’s delve deeper into the factors that make this chemical giant an intriguing choice for investors right now.
What’s Working in Favor of LYB?
Solid Rank & VGM Score: LyondellBasell currently has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 or #2 (Buy), offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.
An Outperformer: LyondellBasell has trounced the industry over the past six months. The company’s shares have rallied around 20.7% over this period, compared with roughly 12.9% gain recorded by the industry.
Attractive Valuation: Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value chemical stocks, LyondellBasell is currently trading at trailing 12-month EV/EBITDA multiple of 8.3, much cheaper compared with the industry average of 19.9.
Superior Return on Equity (ROE): LyondellBasell’s ROE of 55.1%, as compared with the industry average of 11.2%, manifests the company’s efficiency in utilizing shareholder’s funds.
Strong Q4 and Upbeat Outlook: LyondellBasell’s profits surged more than two-fold year over year to $1.9 billion or $4.80 per share in the fourth quarter of 2017. The bottom line was boosted by a non-cash benefit from the U.S. tax reform of $2.07 per share.
Adjusted earnings of $2.73 per share for the quarter outstripped the Zacks Consensus Estimate of $2.52. Revenues went up roughly 18% year over year to $9,135 million in the quarter, beating the Zacks Consensus Estimate of $8,785 million. The company witnessed higher sales across its segments in the quarter.
LyondellBasell noted that strong global demand and delays in capacity additions across the industry have led to improved outlook for 2018. The company intends to realize the benefits of strong operating rates across its global portfolio of assets and continue the upward trajectory in profitability for the Houston refinery. The company expects strong contributions from its refinery in 2018 driven by the efforts to improve its reliability and performance.
LyondellBasell is executing its expansion projects to leverage the U.S. natural gas liquids advantage. The company’s expansion initiatives are expected to boost capacity and add to its earnings.
The company is constructing a high-density polyethylene (HDPE) plant on the U.S. Gulf Coast that will employ its proprietary Hyperzone PE technology. The facility is expected to have an annual capacity of 1.1 billion pounds. LyondellBasell is also constructing a world scale plant on the U.S. Gulf Coast for producing propylene oxide (PO) and tertiary butyl alcohol (TBA), which will have an annual capacity of 1 billion pounds of PO and 2.2 billion pounds of TBA and its derivatives.
A major part of the company’s growth investment for 2018 will be allocated to these projects. LyondellBasell expects capital spending of roughly $2.4 billion for 2018 with roughly 55% is targeted toward profit generating growth.
Moreover, LyondellBasell, in November, entered into an agreement to buy 50% interest in Quality Circular Polymers (“QCP”) — a high standard plastics recycling company located in Sittard-Geleen, Netherlands. Per the agreement, LyondellBasell will be a 50/50 partner in QCP along with SUEZ — a French company specializing in waste and water management.
The deal combines LyondellBasell's technical capabilities and European market presence with SUEZ's ability to collect and recover waste into new materials. The new venture is likely to provide a strategic platform for sustainable growth.
Other Stocks to Consider
Other companies worth considering in the basic materials space include are Olympic Steel, Inc. , Methanex Corporation (MEOH - Free Report) and The Mosaic Company (MOS - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Olympic Steel has an expected long-term earnings growth rate of 7.5%. Its shares rallied 19% over the past six months.
Methanex has an expected long-term earnings growth rate of 15%. Its shares have rallied 23% over the past six months.
Mosaic has an expected long-term earnings growth rate of 9.5%. Its shares have gained 14% over the past six months.
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