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Huntsman (HUN) Up 37% in a Year: What's Behind the Rally?

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Shares of Huntsman Corporation (HUN - Free Report) have popped around 37% over the last year. The company has also outperformed its industry's growth of roughly 10% over the same time frame.  

Huntsman, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $7.7 billion and average volume of shares traded in the last three months is around 2,920.8K. The company has expected long-term earnings per share growth of 8.3%.

Let's take a look into the factors that are driving this chemical maker.



 

Driving Factors

Forecast-topping earnings performance, efforts to expand specialty businesses and focus on free cash flow generation have contributed to the rally in Huntsman's shares. The company topped earnings and revenues estimates in the first quarter, driven by strong performance across its businesses.

Huntsman’s profits for the first quarter surged nearly four-fold year over year to $350 million or $1.11 per share. Adjusted earnings of 96 cents per share for the quarter topped the Zacks Consensus Estimate of 77 cents.

Notably, Huntsman has delivered positive earnings surprises in each of the trailing four quarters, with an average positive surprise of 25.2%.

The company’s revenues jumped around 19% year over year to $2,295 million in the first quarter, also beating the Zacks Consensus Estimate of $2,154 million. The company saw higher sales across its operating segments. It also benefited from higher average selling prices across most businesses.

Huntsman, in its first-quarter call, stated that it expects performance across all of its businesses to be stronger on a year over year basis in 2018. The company expects to achieve its target of generating $450-$650 million of free cash flow annually over the next several years and will also pursue prudent capital deployment to create shareholder value.

Huntsman remains committed to grow its downstream specialty and formulation businesses. It also remains focused on expanding its margins and generating strong free cash flows. Huntsman generated adjusted free cash flow of $56 million during the first quarter, more than doubling from $23 million a year ago.

Huntsman’s board recently approved an increase in its earlier authorized share repurchase program to up to $1 billion.  This marks a $550 million increase to the current $450 million authorization. The company noted that the buybacks will be supported by its free cash flow generation.

Huntsman, in April, also closed its acquisition of Demilec from an affiliate of Sun Capital Partners, Inc., for $350 million. Demilec is a leading manufacturer and distributor of spray polyurethane foam (SPF) insulation systems in North America.

According to Huntsman, integration of Demilec into its Polyurethanes business delivers considerably higher and stable margins along with offering significant synergies by pulling large quantities of upstream polymeric MDI into specialized spray foam systems. The integrated business is likely to have more than 25% EBITDA margins and double-digit growth.

Huntsman Corporation Price and Consensus

 

Huntsman Corporation Price and Consensus | Huntsman Corporation Quote

Stocks to Consider

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

FMC has an expected long-term earnings growth rate of 14.3%. Its shares have gained roughly 17% over a year.

Chemours has an expected long-term earnings growth rate of 15.5%. The company’s shares have rallied around 25% in a year.

Celanese has an expected long-term earnings growth rate of 8.9%. Its shares have rallied roughly 33% over a year.

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