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Element Solutions (ESI) Up 31% YTD: What's Behind the Rally?

Zacks Equity Research
·4-min read

Element Solutions Inc.'s ESI shares have shot up around 30.6% year to date, broadly outperforming the industry’s rise of 1.5%. The company has also topped the S&P 500’s 16% growth over the same period.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let’s discuss the factors behind this Zacks Rank #2 (Buy) stock’s price surge.

What’s Driving the Stock?

Impressive first-quarter results and bullish prospects have contributed to the company’s share price gain. It recorded adjusted earnings of 37 cents per share for the first quarter, beating the Zacks Consensus Estimate of 32 cents. It generated net sales of $550.1 million, up around 22% year over year.

The company announced an increase in its guidance for 2021. It raised its adjusted earnings guidance to at least $1.30 per share from the prior view of $1.10-$1.15 and expects adjusted EBITDA in the band of $500-$510 million. Moreover, the company anticipates generating free cash flow of $285 million in 2021, up from $275 million expected earlier.

Element Solutions’ high-end electronics business is witnessing robust demand. This apart, a spur in demand across the industrial economy in the first quarter acted as a tailwind.

Moreover, it stands to expand from strategic acquisitions. The recent acquisition of H.K. Wentworth is expected to augment growth in its electronics portfolio. The Kester acquisition has also supplemented business capabilities and scale to its existing electronics assembly materials unit. The DMP buyout brought about an expansion in Element Solutions’ technological investment to provide innovative solutions. The cash proceeds from the divestment of its Agricultural Solution Unit permit the company to invest in markets of strategic importance, and continue mergers and acquisitions.

Additionally, it is poised to gain from cost control, corporate reorganization, economical procurement and supply-chain initiatives in 2021.

Element Solutions remains committed to boost shareholders' returns. It generated $24 million of free cash flow in the first quarter of 2021. The company continues to look for opportunities to deploy excess capital.

Earnings estimates for Element Solutions have been increasing over the past three months. The Zacks Consensus Estimate for 2021 earnings has increased 15.1%. The consensus mark for 2022 earnings has also increased around 18% over the same time frame. The favorable estimate revisions instill investors’ confidence in the stock.

Element Solutions Inc. Price and Consensus

Element Solutions Inc. Price and Consensus
Element Solutions Inc. Price and Consensus

Element Solutions Inc. price-consensus-chart | Element Solutions Inc. Quote

Other Stocks to Consider

Other top-ranked stocks in the basic materials space include Cabot Corporation CBT, Avient Corporation AVNT and Ferro Corporation FOE, each holding a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cabot has a projected earnings growth rate of 125.9% for the current year. The company’s shares have surged 54.9% over a year.

Avient has a projected earnings growth rate of 64.1% for the current year. The company’s shares have jumped 82.6% over a year.

Ferro has a projected earnings growth rate of 54.3% for the current year. The company’s shares have increased 87.1% over a year.

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Zacks Investment Research