Citigroup slashes targets for US chems producers

01 July 2008 15:23  [Source: ICIS news]

TORONTO (ICIS news)--Citigroup has reduced its share price targets and profit estimates for almost all the US chemical producers it covers as the industry is struggling amid soaring energy costs, it said on Tuesday.

 

“The meteoric rise in feedstock costs has changed the economics of chemical manufacturing,” Citigroup said in a research report.

 

The chemical industry in the US was built for $20-$30/bbl oil prices and $2/m British thermal unit (Btu) natural gas prices, not for today's high energy prices, Citigroup said.

 

The industry had no control over the price of basic raw materials like naphtha, natural gas, electricity and certain refinery outputs and thus could no longer offer price protection to its customers when energy prices were changing daily, said Citigroup.

 

Operating managers needed to manage working capital better as inventories had become expensive and credit was difficult to access, said the financial group, adding top management had to balance market share issues with profitability.

 

“All these execution issues are real risks to chemical investors and the business deserves a lower multiple, in our view,” said Citigroup.

 

Citigroup cut it share price target for Dow Chemical to $38, from $43 and its 2008 earnings per share (EPS) estimate for the company to $3.04, from $3.42.

 

DuPont’s share price target was cut to $47, from $53, and the company’s 2008 EPS estimate to $3.52, from $3.58.

 

Citigroup cut Eastman’s share price target to $84, from $92, and its 2008 EPS estimate for the company to $5.38, from $5.58.

 

The bank also reduced its share price targets and EPS estimates for other producers, including Albemarle, Celanese, Huntsman, Lubrizol, Nalco, PPG Industries Rohm and Haas, Sherwin Williams,and Valspar.

 

However, it maintained its share targets and 2008 EPS estimates for industrial gases majors Air Products and Praxair, as well as Ecolab.

 

Also, while Citigroup cut the share price target for Celanese by $1, to $55, and its 2008 EPS estimate to $3.91, from $3.98, it raised it 2009 EPS estimate for Celanese to $4.26, from $4.11, due to expected operational improvements from the company’s Nanjing complex in China and continued tight supply/demand in acetyls.

 

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($1 = €0.63)

By: Stefan Baumgarten
+1 713 525 2653

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