HSBC cuts targets for Georgia, NOVA, Westlake

18 January 2008 17:42  [Source: ICIS news]

TORONTO (ICIS news)--HSBC has cut its share price targets for Georgia Gulf, NOVA Chemicals and Westlake Chemical, saying on Friday it preferred chemical makers with better geographic and product diversity and lower exposure to the US.


The bank's analysts cut its target for Georgia to $4, from $9, for NOVA to $30, from $40 and Westlake to $14, from $19.


Georgia Gulf’s share price was down 6.9%, at $3.78, in early morning trading in New York, NOVA was up 1.1%, at $26.19 and Westlake was up 0.39%, at $15.52.


A key factor was the firms’ relatively limited geographic and product diversity at a time when the industry was on "a march towards a commodity chemical cycle trough by 2011", HSBC said.


Geographical and product diversity were very important for US chemical firms as the US subprime financial crisis could further deepen that country’s housing crisis, it said.


“Our analysis suggests that the companies most exposed to a slowdown in consumer demand are Georgia Gulf, NOVA, and Westlake, driven in most part by slowing auto and housing end markets,” the analysts said.


In the current environment, HSBC preferred chemical stocks with defensive characteristics or diversified broad end markets, such as DuPont, Celanese, Dow Chemical or Praxair, they said.


Another option was what HSBC called “special situation companies” such as Braskem, Methanex or SABIC (Saudi Basic Industries Corp).


Braskem was strong in high-growth Brazil and Methanex was a low-cost methanol producer with an attractive energy end market.


SABIC, for its part, should be able to offset any cyclical margin deterioration with strong volume gains from new capacities, the analysts said.


($1 = €0.68)


By: Stefan Baumgarten
+1 713 525 2653

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