In 2022, global market for specialty chemicals was influenced by 5 segments as they made up ~38% of total market share. Such segments were specialty polymers, electronic chemicals, industrial and institutional cleaners, water polymers, and construction chemicals. Experts believed that Mainland China was categorised as a largest consumer of range of specialty chemicals, including antioxidants, catalysts for petroleum refining and chemical processes, etc. which supported revenue and numbers of best specialty chemical stocks. North America was a leader in consumption of biocides, corrosion inhibitors, cosmetic and personal care chemicals, etc.
Global specialty chemicals market has the valuation of US$272.6 billion in 2022 and should touch US$364.8 billion by 2028. Therefore, market is expected to be compounded at ~5% during forecasted period, providing opportunities for growth to some of the best specialty chemical stocks. Increased demand from end-use industries is expected to contribute significantly to the increase. Because of expansion of several end-use industries such as automotive, electronics, construction, etc. demand for specialty chemicals has been on the upside. Automotive industry has been categorised as a biggest consumer of specialty chemicals. These chemicals are used in manufacturing of several automobile parts such as tires, coatings, etc. to improve performance and durability. Demand for specialty chemicals are expected to increase further as these industries develop and innovate themselves.
With this in mind, we will now look at some of the best specialty chemical stocks which investors should purchase now.
1. Westlake Corporation
Westlake Corp is the manufactures and supplies chemicals, polymers and building products. Performance & Essential Materials segment of the company provides wide range of essential building blocks for making products which are used in everyday living, including olefins, vinyl chemicals, etc.
The company saw net income in 2Q23 of $11.9 million, or $0.34 per limited partner unit, exhibiting a decline of $4.5 million in comparison to 2Q22 net income of $16.4 million. This decline was mainly because of lower production volumes as a result of planned Calvert City maintenance turnaround, and increased interest expenses.
Cash flows from operating activities in 2Q23 came in at $98.5 million, exhibiting a decline of $22.4 million in comparison to 2Q22 cash flows from operating activities of $120.9 million. This was primarily because of lower net income at OpCo. Looking forward, the company expects distributable cash flow to improve in 2H23 as its maintenance work has been sorted. The company is optimistic about strong underlying fundamentals of the Partnership and stability provided to its financial results by the company’s ethylene sales agreement.
2. Celanese Corporation
The company has been categorised as world’s largest producers of acetic acid and its downstream derivative chemicals, which are utilised in numerous end markets, such as coatings and adhesives.
The company reported its 2Q23 GAAP diluted EPS of $2.00 and adjusted EPS of $2.17. It saw net sales of $2.8 billion in 2Q23, exhibiting a decline of 2% from previous quarter, which was due to decrease in pricing of 4% partially offset by a rise in volume of 2%. It saw 2Q consolidated operating profit of $335 million, adjusted EBIT of $444 million, and operating EBITDA of $616 million.
It initiated incremental actions to decrease costs, align production and inventory levels with demand, and improve cash generation as a result of continued demand softness, destocking throughout certain end-markets, and increased competitive dynamics.
The company saw 2Q23 operating cash flow of $762 million and FCF of $611 million that consisted cash capex of $145 million. It returned $76 million in cash to shareholders in the form of dividends in 2Q23.
As a result of controllable actions and improvement in destocking conditions, the company expects 3Q adjusted EPS of between $2.00 – $2.50, inclusive of ~$0.30 per share of M&M transaction amortization. Likewise, it expects full year adjusted EPS of between $9.00 – $10.00.
3. Eastman Chemical Company
The company is a global specialty materials company which produces a broad range of products found in every day use.
Its 2Q results exhibited solid improvement in comparison to 1Q, exhibiting continued commercial excellence in pricing and benefit of lower raw material and energy costs. Strong results were seen despite tough global economic environment as a result of weak primary demand mainly in consumer durables and building and construction end markets.
Sales revenue of the company fell 17% mainly because of 15% lower sales volume/mix. Sales volume/mix was lower throughout most product lines because of continuation of weak primary demand and continued customer inventory destocking throughout several end markets.
In 2Q23, cash provided by operating activities came in at $410 million in comparison to $245 million in 2Q22. In 2Q23, it returned $144 million to stockholders in the form of dividends and share repurchases. Available cash is expected to be used in organic growth investments, payment of quarterly dividend, bolt-on acquisitions, share repurchases, and net debt reduction.
The company expects 2H adjusted EPS of somewhat below 1H and, for 2023, EPS should be between $6.50 – $7.00. It anticipates to generate $1.4 billion of operating cash flow in 2023.
It expects to reduce its manufacturing, supply chain, and non-manufacturing costs by the total of $200 million for FY23, net of inflation. For 2H, the company expects auto, aviation, and other markets to slightly improve.
Analysts at Morgan Stanley initiated a coverage on the stock and gave an “overweight” rating, setting $115.00 price objective on shares of the company in the research report dated July 31st. Citigroup raised its target price on shares of the company from $96.00 to $99.00, giving the stock a “Buy” rating in a report dated 31st July.
Conclusion
Since specialty chemicals provide eco-friendly and sustainable solutions, best specialty chemical stocks are expected to see significant opportunities as a result of increased environmental concerns and standards regarding sustainability. Asia Pacific has been categorised as a home to numerous fastest-growing economies including China, India and Southeast Asian countries.
Economic growth is such countries should help growth in construction activities, infrastructure development and urbanization which should help some of the best specialty chemical companies in increasing their revenues and profits.
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