Chemical manufacturer Huntsman Corporation (HUN) is known for its Polyurethanes and adhesives. It is the primary chemical supplier for many renowned consumer goods companies, including Procter & Gamble (PG) and Unilever N.V. (UL), as well as automotive giants such as Bayerische Motoren Werke AG (BMWYY), commonly known as BMW, and General Motors Company (GM).
HUN’s stock maintained its momentum throughout the past year despite a performance dip by the broader chemical industry due to the COVID-19 pandemic. HUN has gained 37.6% over the past year and 80.2% over the past nine months. However, the stock has declined slightly over the past month due to the economy’s delayed recovery.
Nevertheless, we believe HUN is well-positioned to advance further as the demand for chemical products picks up in the coming months. With plenty of remaining upside, the stock is currently trading at a discount to its peers, making it an ideal bet for value investors.
Here’s why I think HUN is a solid value pick:
Trading at a Discounted Valuation
In terms of forward p/e, HUN is currently trading at 8.32x, which is 59.8% lower than the industry average 20.68x. Its forward price/sales of 1.05x is 32.8% lower than the industry average 1.56x.
The company’s forward price/book and ev/sales ratios of 1.81x and 1.30x, respectively, compare favorably with relative industry averages.
Acquisitions Amid Rebounding Industry
On January 15, HUN acquired specialty chemical manufacturer Gabriel Performance Products for $250 million. This acquisition expands HUN’s market reach in the specialty chemicals industry, which is expected to gain traction this year. The move comes in the wake of the company’s sale of its India-based consumer adhesive business in November for $258 million to strengthen its liquidity position and balance sheet.
HUN’s strategies to expand its operations in a recovering economy position it well to augment its earnings. The American Chemistry Council (ACC) estimates overall chemical production will increase 3.9% this year because most industries will increase their demand during the economic recovery phase. The rebound will follow a 3.7% production decline by the industry in in 2020. ACC also projects that demand for specialty chemicals will rise 2.4%, while the demand for basic chemicals is expected to witness a 5% rise.
HUN’s trailing 12-month net income margin of 16.55% is significantly higher than the industry average 4.75%. Its trailing 12-month leveraged free cash flow of 18.99% is 115.6% higher than the industry average 8.81%. Moreover, the company’s trailing 12-month return on total assets of 12.28% compares favorably with the industry average 2.29%.
Price Target and Analyst Rating Reflect Potential Upside
HUN is currently trading 3.8% below its 52-week high of $29.41, which it hit on February 8. Analysts expect the stock to break out of this resistance level to hit a three-year high of $31.76 soon, representing a potential 10.7% upside.
The stock has an average broker rating of 1.45, indicating favorable analyst sentiment. Of 20 Wall Street analysts that rated the stock, five rated it “Strong Buy” and 12 rated it “Buy”.
POWR Ratings Show Promise
HUN has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. It has a B grade for Value and Sentiment, which is reflected in its discounted valuation and favorable analyst sentiment. Analysts estimate the company’s earnings and revenue to rise 105.2% and 13.2%, respectively, in fiscal 2021.
The Chemicals industry has several other stocks with an overall rating of A or B. Click here to see them.
Despite gaining 37.6% over the past year, HUN has more room to grow as the Chemicals industry makes a strong rebound in 2021. Given the company’s projected earnings, we think its stock price will hit fresh highs this year, delivering substantial capital gains for investors.
Want More Great Investing Ideas?
HUN shares were trading at $28.29 per share on Thursday afternoon, down $0.00 (0.00%). Year-to-date, HUN has gained 12.53%, versus a 4.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|HUN||Get Rating||Get Rating||Get Rating|