Stock to Avoid: Arkema S.A. - Analyst Blog

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Zacks Investment Research downgraded Arkema S.A. ( ARKAY ) to a Zacks Rank #5 (Strong Sell) on Jun 5, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader market.

Why the Downgrade?

The American Depository Receipt (ADR) price of Arkema S.A. has slipped 2.7% since the company reported lackluster financial results for first-quarter 2014. In local currency, the company's adjusted net income decreased 2.7% year over year with earnings per share down by 9.7%.

The top-line result was weak as revenues generated declined 2.6% year over year. Volume gains were 3.3%, offset by 2.6% and 2.1% of negative impact from price movement and currency translation respectively, along with 1.2% loss from miscellaneous sources.

Arkema's earnings before interest, tax, depreciation and amortization (EBITDA) declined 9.0% year over year while EBITDA margin fell 100 basis points.

The disappointing results triggered a downward revision in earnings estimates. Over the last 30 days, the Zacks Consensus Estimate of Arkema S.A. has declined 4.7% to $7.99 per ADR for 2014 and 2.1% to $9.60 per ADR for 2015. Unsubstantial results and lowered earnings estimates have made investors skeptical about Arkema's financial performance in the quarters ahead.

Other Stocks to Consider

Arkema S.A. has a $6.4 billion market capitalization. Some better-ranked stocks in the chemical industry include Compass Minerals International Inc. ( CMP ), Koninklijke DSM N.V. ( RDSMY ) and PetroLogistics LP ( PDH ). While Compass Minerals sports a Zacks Rank #1 (Strong Buy), both Koninklijke DSM and PetroLogistics carry a Zacks Rank #2 (Buy).

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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