On Jul 8, we initiated coverage on
LyondellBasell Industries NV
). While the Netherlands-based chemical giant is expected to gain
from its expansion projects, it is exposed to volatility in raw
material and energy costs and a still challenging European market.
LyondellBasell, a Zacks Rank #3 (Hold) stock, saw higher revenues
and profit in first-quarter 2014, reported on Apr 29, on gains
across most of its businesses. The improvement came despite
headwinds from weather-related raw material cost volatility and
shipping delays. However, both sales and adjusted earnings missed
Zacks Consensus Estimates.
LyondellBasell, which emerged from Chapter 11 bankruptcy in 2010,
is among the leading plastics, chemical and refining companies
globally. The company continues to benefit from favorable North
American natural gas environment and is executing its expansion
projects to leverage the U.S. natural gas liquids (NGLs) advantage.
LyondellBasell remains on track with its ethylene expansion
projects. The company's multi-plant ethylene expansion program,
which started last year, represents a total investment of roughly
$1.3 billion across its Channelview, La Porte and Corpus Christi
facilities which benefit from shale gas production. The expansion
program, when in full swing, is expected to expand annual ethylene
capacity by an estimated 1.85 billion pounds for an aggregate
projected capacity of 11.8 billion pounds in North America.
LyondellBasell's methanol facility at Channelview (restarted in
fourth-quarter 2013) along with its other expansion projects are
expected to bring in new capacity at considerably lower cost than
building new facilities.
LyondellBasell also remains committed to deliver greater value to
its shareholders leveraging healthy cash flows. The company, in Apr
2014, announced a 17% rise in its interim dividend to 70 cents per
However, LyondellBasell faces volatility in raw material and energy
costs that account for a major portion of its operating costs. It
saw elevated costs of natural gas feedstock in the first quarter.
Higher natural gas and NGL costs led to an increase in ethylene
production costs in the quarter.
LyondellBasell is also exposed to macroeconomic uncertainties and
volatility across end-use markets it serves. The company derives a
major chunk of its sales and earnings from the European market
which is not out of the woods. The slow recovery in Europe may
affect its business in the region.
LyondellBasell's businesses are also affected by cyclicality of
chemical and refinery industries. Moreover, downtime associated
with maintenance turnaround at its La Porte facility is expected to
have some impact on ethylene production in the second quarter. The
company also faces significant price pressure as it operates in
highly competitive markets.
Other Stocks to Consider
Other companies in the chemical space worth considering include
KMG Chemicals Inc.
). While KMG Chemicals holds a Zacks Rank #1 (Strong Buy), both
Celanese and Ashland sport a Zacks Rank #2 (Buy).
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