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 Makes LYB an Attractive Pick?
Solid Rank & VGM Score: LyondellBasell currently has a Zacks Rank #2 (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 (Strong Buy) or #2, 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 a year. The company’s shares have rallied around 28.7% over this period, compared with roughly 5.8% growth 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 8.1, much cheaper compared with the industry average of 12.5.
Superior Return on Equity (ROE): LyondellBasell’s ROE of 53.6%, as compared with the industry average of 9.2%, manifests the company’s efficiency in utilizing shareholder’s funds.
Upbeat Prospects: LyondellBasell, during its first-quarter call, said that it sees seasonal margin improvements in oxyfuels and refining. It also expects to benefit from continued high operating rates in the second quarter. Per management, the imbalance between ethylene production and consumption is expected to improve as the downstream derivative units attain full operating rates. The company also noted that strong global demand and higher oil prices continue to support strong polyolefin pricing.
LyondellBasell is executing its expansion projects to leverage the U.S. natural gas liquids advantage. It remains on track with the construction of an 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. The company’s expansion initiatives are expected to boost capacity and add to its earnings.
LyondellBasell and SUEZ, earlier this year, also completed a transaction that makes them 50/50 partner in the Netherlands-based premium plastics recycling company, Quality Circular Polymers. For many years, LyondellBasell has been witnessing increased demand for reused and recycled plastics, particularly in Europe. The move helps the company to create an innovative system that can be scaled as the circular economy grows. The two partners will be able to leverage their respective strengths through this joint business.
Moreover, LyondellBasell, in February, agreed to buy A. Schulman in a deal worth $2.25 billion, a move that will create a premier global provider of advanced polymer solutions with extensive geographic reach, leading technologies and a diverse product portfolio. A. Schulman is a leading supplier of high-performance plastic compounds, composites and powders.
The company recently secured the approval from the European Commission for the proposed buyout. The acquisition, which has also been cleared by antitrust regulators in the United States, Brazil, China, Serbia, Turkey and Mexico, is expected to consummate in second-half 2018.
The buyout doubles the size of LyondellBasell's existing compounding business. It also creates a platform for future growth with reach into additional high-growth markets such as packaging and consumer products, electronics and appliances, building and construction, and agriculture. The acquisition will enable the company to offer a comprehensive range of innovative solutions to its customers.
LyondellBasell expects to capture $150 million in run-rate cost synergies within two years. The buyout is also expected to be accretive to earnings within the first full year following its closure.
Other Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include Westlake Chemical Corporation (WLK - Free Report) , The Chemours Company (CC - Free Report) and FMC Corporation (FMC - Free Report) , each carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Westlake Chemical has an expected long-term earnings growth rate of 12.2%. Its shares have shot up roughly 61% over a year.
Chemours has an expected long-term earnings growth rate of 15.5%. The company’s shares have gained around 17% in a year.
FMC has an expected long-term earnings growth rate of 14.3%. Its shares have rallied roughly 21% over a year.
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