3 Chemical Stocks Likely to Outshine Q2 Earnings Estimates
Chemical companies’ second-quarter results are expected to reflect the upturn in demand across major end-use industries from the coronavirus-led slowdown. The rollout of lockdowns and restrictions by governments around the world in the wake of the pandemic brought global industrial activities to a shuddering halt through the first half last year, squeezing demand for chemicals.
However, with the easing of restrictions on business activities globally and an economic rebound in China — a top consumer of chemicals — demand for chemicals started to pick up from the third quarter of 2020 in major end-use industries. The recovery continued to gain steam through the first half this year on an upswing in global industrial activities.
While chemical companies are grappling with a spike in raw material costs due to supply chain disruptions, they are seeing a strong rebound in demand in key end-use markets including automotive, construction and electronics. Solid demand in automotive and construction, the two major chemical-consuming markets, is likely to have driven their volumes and top lines in the second quarter.
The automotive sector has regained its mojo after the virus-led slump on the back of a rebound in customer demand for new vehicles. An uptick in the automotive OEM production has led to a recovery in demand for chemicals in the automotive market.
The construction sector has also bounced back strongly on the resumption of projects that were deferred last year amid the pandemic. Notably, strength is being witnessed in residential construction globally, supported by lower interest rates and higher demand for new properties due to the rising trend of work from home. Companies in the chemical space are also expected to have benefited, in the June quarter, from higher demand for chemicals and materials across healthcare and packaging markets, thanks to coronavirus.
Against a still-challenging backdrop, chemical makers remain focused on self-help measures, including cost-cutting and productivity improvement, expansion into high-growth markets, restructuring, operational efficiency improvement, and actions to strengthen balance sheets and boost cash flows. A number of companies in this space have also been taking price increase actions to counter raw material and logistics cost inflation. Chemical companies also remain actively focused on acquisitions to diversify and drive growth. The benefits of these actions might reflect on their second-quarter results.
Among the chemical companies that have already come up with their quarterly numbers, we have seen solid earnings beats from prominent names such as Dow Inc. DOW and Celanese Corporation CE on the back of a continued revival in end-market demand.
Expectations for Q2
The chemical industry is housed within the broader Zacks Basic Materials sector. Basic Materials is among the sectors that are expected to deliver positive earnings growth in the second quarter. Overall earnings for the sector are projected to rise 270.3% on 46.2% higher reve-nues, per the latest Earnings Trends. The projections reflect an improvement from an 80.4% rise in earnings on a 12.2% increase in revenues that was witnessed in the first quarter.
How to Pick Winners?
Given the large number of players operating in the chemical space, picking the right stocks is apparently not an easy task. But our proprietary methodology makes it fairly simple. One can trim down the list with the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Zacks Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter.
Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining stocks that have high chances of delivering earnings surprises in their next announcements. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as much as 70%.
Below we list three chemical stocks that have the right combination of elements to pull off positive surprises this earnings season:
Westlake Chemical Corporation WLK has an Earnings ESP of +1.50% and a Zacks Rank #1. It is slated to report second-quarter results on Aug 3.
The company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 319.6%. The Zacks Consensus Estimate for second-quarter earnings has been revised 7.3% upward over the last 60 days. The consensus estimate for second-quarter earnings is pegged at $3.80, which suggests a rise of a whopping 3,354.6% from the prior-year quarter. Westlake Chemical is likely to have benefited from higher demand in its polyethylene business in specialty applications, especially food packaging, and strength in global demand for PVC resin. Demand in the downstream building products business is likely to have remained strong in the quarter on new housing starts and spending on repair and remodeling activities.
Westlake Chemical Corporation Price and EPS Surprise
DuPont de Nemours, Inc. DD has an Earnings ESP of +3.81% and a Zacks Rank #3. It is scheduled to report second-quarter results on Aug 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 13.6%. The consensus mark for second-quarter earnings has been stable over the last 60 days. The Zacks Consensus Estimate for second-quarter earnings is pegged at 94 cents, which suggests a rise of 34.3% from the prior-year quarter. Benefits of cost-savings and productivity actions are expected to get reflected on DuPont’s results. The company is also expected to have benefited, in the second quarter, from strong demand in semiconductor technologies and smartphones. Higher demand in the water solutions, automotive and residential construction markets are also likely to have supported its performance.
DuPont de Nemours, Inc. Price and EPS Surprise
Eastman Chemical Company EMN has an Earnings ESP of +0.90% and carries a Zacks Rank #3. The company is scheduled to report second-quarter results on Aug 2.
It delivered an earnings surprise of 2.5%, on average, over the trailing four quarters. The Zacks Consensus Estimate for second-quarter earnings has been revised 1.3% upward over the last 60 days. The consensus estimate for second-quarter earnings is pegged at $2.32, which suggests a rise of 172.9% from the prior-year quarter. The company is likely to have gained from higher demand across building & construction, transportation, and consumer durables markets. Continued strength in these markets is expected to have driven its sales volumes. Benefits of cost-management actions are also expected to get reflected in the company’s second-quarter results.
Eastman Chemical Company Price and EPS Surprise
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Westlake Chemical Corporation (WLK): Free Stock Analysis Report
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Eastman Chemical Company (EMN): Free Stock Analysis Report
Celanese Corporation (CE): Free Stock Analysis Report
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