The chemicals industry, which was already facing cyclical challenges such as overcapacity, pricing pressures, and trade uncertainty in the pre-pandemic period, came to what felt like a screeching halt at the beginning of the COVID-19 pandemic last year. According to the American Chemistry Council (ACC), U.S. chemical output fell 3.6% in 2020.

The industry is now regaining momentum after coping with supply disruptions, falling demand and shrinking revenue. The new Presidential administration has pledged to review industry tariffs, and is advocating a revised trade deal with China, thereby ending a four-year trade dispute with the Asian giant. This could boost U.S. chemical exports and improve the industry’s profitability through a potential rebound in prices. The American Chemistry Council estimates chemical production will rise 3.9% in 2021.

Given these developments, companies such as Eastman Chemical Company (EMN) and Huntsman Corporation (HUN) have implemented strategic initiatives in areas such as R&D and technology. They are also investing in innovation and emerging applications. Hence, we think these stocks could be good additions to your portfolio now.

Eastman Chemical Company (EMN)

EMN is a global advanced materials and specialty additives company. It serves attractive end-markets such as transportation, building and construction, and consumables. The Company’s segments include Additives & Functional Products, Advanced Materials, Chemical Intermediates, and Fibers.

Last week, EMN announced its plans to build one of the world’s largest plastic-to-plastic molecular recycling facilities at its site in Tennessee at a $250 million cost. The facility will convert polyester waste into durable products, creating an optimized circular economy. This investment shows EMN’s commitment to addressing the global waste crisis and to mitigating factors that  contribute to climate change, while also creating value for its stakeholders.

EMN’s gross profit has increased 5.8% year-over-year to $526 million in the fourth quarter ended December 31, 2020. Its adjusted EBIT has risen 17.9% from the year-ago value to $329 million, while adjusted EPS has improved 19% from the same period last year to $1.69. Its sales revenue for Additives & Functional Products and Advanced Materials increased 1% and 6%, respectively, driven primarily  by improving demand in the building and construction and transportation end markets.

Analysts expect EMN’s revenues to grow 6.4 % year-over-year to $9.02 billion in the fiscal 2021 ending December 31. A consensus EPS estimate of $7.25 for the current year represents a 17.9% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 38.9% over the past year.

EMN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. EMN has a B grade  for Quality, Value and Sentiment. In the A-rated 94-stock Chemicals Industry, it is ranked #12.

In total, we rate EMN on eight  different factors. Beyond what we stated above, we have also given EMN grades for Growth, Momentum, and Stability. Get all the EMN ratings here.

Huntsman Corporation (HUN)

HUN manufactures and sells differentiated organic and inorganic chemical products worldwide through its subsidiary, Huntsman International LLC. The Company operates through four segments: Polyurethanes, Performance Products, Advanced Materials, and Textile Effects serving a variety of industries.

In December, HUN completed the sale of approximately 42.4 million ordinary shares of Venator Materials PLC for approximately $100 million in cash. This transaction enabled the company to reduce its current tax obligations by $150 million by offsetting the capital loss on the sale of the shares.

This month , HUN completed the acquisition of a North American specialty chemical manufacturer, Gabriel Performance Products, for approximately $250 million in an all-cash transaction. This acquisition broadens the company’s specialty chemicals portfolio and is expected to enlarge  its North American footprint and  provide significant commercial synergies.

Despite the global economic slowdown that resulted from the COVID-19 pandemic, HUN’s adjusted EBITDA for the Polyurethanes segment has increased 7% year-over-year to $156 million in the third quarter ended September 30, 2020. This was due primarily to lower raw material costs and lower fixed costs as well as additional sales volumes. Its net income has risen 39% from the year-ago value to $57 million over the same period, yielding EPS of $0.22, up 69% year-over-year.

Analysts expect HUN’s revenues to grow 5.8% year-over-year to $1.69 billion in the current quarter ending March 31, 2021. The consensus EPS estimate of $0.43 for the current quarter represents  a 48.3% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 24.3% over the past year.

It is no surprise that HUN has an overall rating of B, which equates to Buy in our POWR Ratings system. HUN has a grade of B for Value and Sentiment. It is currently ranked #47 of 94 stocks in the same industry.

Click here to see the additional POWR Ratings for HUN (Growth, Momentum, Quality, Stability, and Industry).

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EMN shares were unchanged in after-hours trading Monday. Year-to-date, EMN has declined -0.28%, versus a 0.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...

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