UpdateNPRA '08: Wall St chems estimates to fall

30 March 2008 18:43  [Source: ICIS news]

(adds video interview with Sergey Vasnetsov)

SAN ANTONIO, Texas (ICIS news)--Wall Street's consensus earnings estimates for US chemical companies are too high and poised to fall, Lehman Brothers analyst Sergey Vasnetsov said on Sunday.

"Many stocks are down 20-30% since October 2007 and already reflect negative expectations. But the analyst community has not adjusted to this view yet. Earnings estimates  for 2008 and 2009 are still too high," he said on the sidelines of the 33rd National Petrochemical & Refiners Association (NPRA) meeting.

Weakness in the US economy, along with high feedstock prices and an impending downturn in the ethylene cycle will drag on profitability, The trough is finally coming, but there shouldn't be panic," Vasnetsov said.

"The industry has been anticipating this for some time," he added.

Vasnetsov expects the cycle to trough in 2009 through 2011 as massive Middle East ethylene and derivatives capacity comes on line. This would have the largest impact on the commodity chemical sector, he said.

The specialty chemical sector would be hit by any decrease in demand for consumer durables.

"It's time to play defense. The industrial gases sector should be able to maintain stable volumes and margins through these tough times," Vasnetsov said.

Industrial gases companies such as Air Products and Praxair  have been called "chicken cyclicals" because they can benefit from an economic upcycle while also providing defensive characteristics. The analyst proposed a different moniker for them - "eagle cyclicals."

"The sector is not completely immune to the economy, but it has proven it can soar above economic volatility," says Vasnetsov.

"Earnings are being driven by the demand for gasoline, and industrial growth in China and India," he added.

The 33rd annual NPRA meeting started on Sunday and ends on Tuesday.

"Many stocks are down 20-30% since October 2007 and already reflect negative expectations. But the analyst community has not adjusted to this view yet. Earnings estimates  for 2008 and 2009 are still too high," he said on the sidelines of the 33rd National Petrochemical & Refiners Assoication (NPRA) meeting.

Weakness in the US economy, along with high feedstock prices and an impending downturn in the ethylene cycle will drag on profitability, The trough is finally coming, but there shouldn't be panic," Vasnetsov said.

"The industry has been anticipating this for some time," he added.

Vasnetsov expects the cycle to trough in 2009 through 2011 as massive Middle East ethylene and derivatives capacity comes on line. This would have the largest impact on the commodity chemical sector, he said.

The specialty chemical sector would be hit by any decrease in demand for consumer durables.

"It's time to play defense. The industrial gases sector should be able to maintain stable volumes and margins through these tough times," Vasnetsov said.

Industrial gases companies such as Air Products and Praxair  have been called "chicken cyclicals" because they can benefit from an economic upcycle while also providing defensive characteristics. The analyst proposed a different moniker for them - "eagle cyclicals."

"The sector is not completely immune to the economy, but it has proven it can soar above economic volatility," says Vasnetsov.

"Earnings are being driven by the demand for gasoline, and industrial growth in China and India," he added.

The NPRA meeting started on Sunday and ends on Tuesday.


By: Joseph Chang
+1 713 525 2653



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