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Why Should You Hold Onto Kronos Worldwide (KRO) for Now?

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Kronos Worldwide, Inc. (KRO - Free Report) is expected to gain from higher demand for titanium dioxide (TiO2) amid certain headwinds including raw material cost pressure.

Shares of this leading producer and marketer of TiO2 are down 40.1% over a year, compared with the 52.1% decline of its industry.


 

Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

Driving Factors

Kronos Worldwide will benefit from higher long-term demand for TiO2, a white pigment widely used for providing whiteness, brightness and opacity. Demand for TiO2 has been growing at an annual rate of 3% over the last several years on the back of strong consumptions across Western Europe and North America.

Per the company, Western Europe and North America each account for roughly 17% of global TiO2 consumption.  Markets for TiO2 are also increasing in Eastern Europe, South America, the Asia Pacific region and China. The company expects demand for TiO2 to rise as economies in these regions continue to develop. It expects demand to grow 2-3% annually over the long term.

Moreover, the company is gaining from its broad product portfolio (including more than 40 different TiO2 pigment grades), development of new products and a solid customer base in paper, coatings and plastics end markets. Its top 10 customers accounted for roughly 36% of its sales in 2019.

Kronos Worldwide is also benefiting from effective marketing strategies as well as its focus on research and development aimed at improving product quality and production process and developing new application areas. It plans to spend around $17 million on research and development in 2020.

A Few Concerns

Kronos Worldwide is exposed to raw material cost inflation. It is seeing higher cost of third-party feedstock ore as witnessed in the last reported quarter. The company expects cost of sales per metric ton of TiO2 sold in 2020 to be higher year over year due to higher feedstock costs.

The company also anticipates slightly lower sales volumes in 2020 compared with 2019 based on expected production levels and assuming global economic conditions to remain stable (including the limited impact of coronavirus). It expects sales to be modestly lower year over year in 2020, mainly resulting from lower expected sales volumes.

Moreover, Kronos Worldwide faces challenges from softer selling prices. Its average TiO2 selling prices fell 3% year over year in the last reported quarter and weighed on its profits. Prices are likely to remain under pressure over the near term.
 

 

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space are Franco-Nevada Corporation (FNV - Free Report) , NovaGold Resources Inc. (NG - Free Report) and Daqo New Energy Corp. (DQ - Free Report) .

Franco-Nevada has a projected earnings growth rate of 24.7% for 2020. The company’s shares have rallied roughly 31% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently carries a Zacks Rank #1. The company’s shares have surged roughly 90% in a year.

Daqo New Energy has a projected earnings growth rate of 336.1% for 2020. The company’s shares have shot up around 57% in a year. It currently carries a Zacks Rank #2 (Buy).

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