FocusWall Street boosts US Solutia’s outlook

28 January 2011 18:25  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--Wall Street analysts expect continued profit gains in 2011 for US-based chemical company Solutia, they said on Friday, after the company reported better-than-expected results a day earlier.

Solutia posted underlying earnings per share of 36 cents for the fourth quarter of 2010, beating consensus estimates by four cents. Sales rose 7% year over year to $489m (€357m).

Overall 2010 adjusted earnings per share totaled $1.57 on 21% higher sales of $1.95bn.

Jefferies & Co analyst Laurence Alexander raised his 2011 earnings-per-share forecast by 10 cents, to $2.20, noting “this could prove conservative, depending on the degree to which volumes and productivity can offset raw material pressure”.

However, he lowered his 2012 estimate by 10 cents, to $2.50 on potential margin pressure in the films business.

Alexander also boosted his price target on Solutia by $3, to $30, representing multiples of 12.5 times estimated 2012 earnings per share, and 7.7 times estimated earnings before interest, tax, depreciation and amortisation (EBITDA).

“Leading market positions and solid free cash flow generation should support Solutia shares and offset volatility in the auto and construction end markets,” said the analyst in a research note.

Solutia can look forward to good operating profit leverage from acquisitions and capital investments in 2011, said BB&T Capital Markets analyst Frank Mitsch.

“Integration of Vistasolar and Novomatrix is ahead of plan, and expansion projects are being undertaken in emerging markets - particularly China. This should make Asia an even larger part of Solutia’s pie in 2011. After growing sales 33% year on year in 2010, Asia accounted for 29% of total sales to edge out the US at 25%,” said Mitsch in a research note.

“We expect the around $90m of growth capital to deliver nice returns over the 2011-2012 time frame, starting with the Vistasolar EVA (ethylene vinyl acetate) expansion in mid-2011,” he added.

The Vistasolar business produces EVA-based solar cell encapsulants, while Novomatrix markets polyethylene terephthalate (PET)-based films for windows.

Solutia is expanding its Suzhou, China facility, boosting polyvinyl butyral (PVB) capacity with a new production line by the end of 2011, and adding one for the production of EVA encapsulants by the end of June 2011.

The analyst maintained his 2011 earnings per share estimate of $2.15, and introduced a 2012 forecast of $2.55.

His stock price target of $27 for Solutia represents a multiple of 7 times estimated 2012 EBITDA - “still a discount considering [Solutia’s] industry leading margins and attractive growth profile,” he pointed out.

Shares of Solutia fell 65 cents, or 2.7%, to $23.25 in early afternoon trading on the New York Stock Exchange.

($1 = €0.73)

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Author: Joe Chang

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