Huntsman Corporation HUN should gain from its investment in downstream businesses, differentiated product innovation and strategic acquisitions amid headwinds from demand weakness and pricing pressure.
The company’s shares are up 0.2% over the past year, compared with 9% rise of its industry.
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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Downstream Expansion & Cost Synergies Aid HUN
Huntsman remains focused on growing its downstream specialty and formulation businesses and is shifting its MDI (methylene diphenyl diisocyanate) business from components to differentiated systems that typically have higher margins and lower volatility.
The company's Polyurethanes segment is well positioned for strong upside in the long term on the back of its focus on ramping up its high-value differentiated downstream portfolio. The substitution of MDI for less effective materials will remain a key driving factor for the MDI business.
Huntsman should also gain from significant synergies of acquisitions. Its strong liquidity and balance sheet leverage give it adequate flexibility to continue to develop and expand its core businesses through acquisitions and internal investments. The acquisitions of CVC Thermoset and Gabriel Performance Products are contributing to EBITDA in the Advanced Materials segment.
The company remains on track with its cost realignment and synergy plans and expects to achieve around $280 million of annualized run rate savings by the end of 2023. Its European restructuring program is expected to deliver roughly $40 million of additional savings by the end of this year.
Weak Pricing, Soft Demand Ail
The company faces challenges from demand softness as witnessed during the first half of 2023. Demand conditions in Europe deteriorated due to high levels of natural gas prices. Demand in China is also being impacted by reduced economic growth resulting from the pandemic-led restrictions and lower construction activities. While demand conditions have improved somewhat of late in these regions, the lingering impacts of lower year-over-year demand are likely to weigh on volumes in the third quarter of 2023. Soft demand in the Americas is also impacting polyurethanes volumes. Weaker demand in infrastructure coatings and industrial adhesives markets is also expected to continue to hurt volumes in Advanced Materials.
Huntsman is also exposed to headwinds from pricing pressure. Lower selling prices across Polyurethanes and Performance Products segments weighed on its results in the second quarter. Competitive pricing is affecting both segments. MDI prices are being hurt by competitive pricing pressure. Weaker prices are likely to continue to impact these segments in the third quarter.
Huntsman Corporation Price and Consensus
Huntsman Corporation price-consensus-chart | Huntsman Corporation Quote
Stocks to Consider
Better-ranked stocks worth a look in the basic materials space include Carpenter Technology Corporation CRS, Hawkins, Inc. HWKN and Alamos Gold Inc. AGI.
The Zacks Consensus Estimate for current fiscal-year earnings for CRS is currently pegged at $3.48, implying year-over-year growth of 205.3%. Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Carpenter Technology has a trailing four-quarter earnings surprise of roughly 10%, on average. The stock has rallied around 84% over the past year.
Hawkins currently carrying a Zacks Rank #1. It has a projected earnings growth rate of 18.9% for the current year.
Hawkins has a trailing four-quarter earnings surprise of roughly 25.6%, on average. HWKN shares are up around 56% in a year.
Alamos Gold currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for AGI's current-year earnings has been revised 7.5% upward over the past 60 days.
The Zacks Consensus Estimate for current fiscal-year earnings for Alamos Gold is currently pegged at 43 cents, implying year-over-year growth of 53.6%. AGI shares have surged around 124% in a year.
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