Methanex Downgraded to Neutral (revised) - Analyst Blog


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We have downgraded our long-term recommendation on Methanex Corporation ( MEOH ) to Neutral from Outperform following its mixed first-quarter 2012 results. The company's earnings of 23 cents per share in the quarter missed the Zacks Consensus Estimate of 36 cents. However, revenues of $666 million increased 7.6% year over year, beating the Zacks Consensus Estimate of $633 million.

The company's facility in Chile operated below the site capacity during the quarter due to curtailed natural gas supplies from Argentina. Methanex markets methanol it produces as well as that which is acquired from others. The company makes much more money from the methanol it produces and therefore its earnings were affected during the quarter as its facilities were operating below capacity.

Methanex remains exposed to tight economic conditions and uncertainties associated with the demand and pricing of methanol. However, the company expects strong methanol demand and an upward pressure on prices for the second quarter of 2012. The company believes that methanol price will depend on the global economic conditions, industry operating rates, global energy prices, new supply additions and the strength of global demand.

The company has started a project to relocate one of the Chilean plants to the U.S. Gulf Coast, and secured a site in Geismar, Louisiana, which is expected to provide good return. The project benefits from competitive natural gas prices and an excellent business environment in Geismar with extensive infrastructure and significant methanol demand nearby.

Methanex has restart one plant in Medicine Hat, Alberta as of April 2011, which is expected to generate considerable cash flows in the years ahead.Methanex also announced plans to restart a second facility in New Zealand in mid-2012, which will provide an additional 0.65 million tons of methanol capacity. The company's New Zealand facilities are ideally located to support the growing Asia Pacific market.

Methanex faces stiff competition from Celanese Corp. ( CE ) and Eastman Chemical Co. ( EMN ). The company currently retains a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating.

(We are reissuing this article to correct a mistake. The original article, issued May 15, 2012, stated that the Alberta plant was not yet operational, and should therefore no longer be relied upon.)

CELANESE CP-A (CE): Free Stock Analysis Report
EASTMAN CHEM CO (EMN): Free Stock Analysis Report
METHANEX CORP (MEOH): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
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