Commodity chemicals to get big earnings boost from US storm impact - Jefferies

Author: Joseph Chang

2021/02/24

NEW YORK (ICIS)--Jefferies on Wednesday boosted profit estimates for a number of commodity chemicals companies, with significant gains for LyondellBasell, Dow, Covestro and Methanex, on the US winter storm impact.

“We are raising estimates for most of our commodity chemical coverage to reflect fly-ups in margins that we expect to linger into Q2. Covestro is the first company to explicitly call out near-term earnings well-above ‘mid-cycle’ [and] we expect more companies to call out similar dynamics on the Q1 earnings calls,” said Jefferies analyst Laurence Alexander in a research note.

“Given our forecast of summer demand trends running 200-300 basis points (2-3 percentage points) above the macro consensus, we expect the fly-up margins to have less of a cliff, giving way to operating leverage to higher volumes in H2 2021-2022,” he added.

The analyst boosted his 2021 earnings per share (EPS) estimates for LyondellBasell to $19.60 from a previous from $11.60, for Dow to $4.80 from $4.05, for Covestro to €4.65 from €3.05, and for Methanex to $2.55 from $1.90. Estimates for Eastman and Huntsman were taken up slightly.

Along with tightness in commodity chemicals stemming from plant outages on the US Gulf Coast, Alexander sees resurgent demand which will likely accelerate in the summer on stimulus effects.

Thumbnail image shows bags made out of polyethylene (PE). Photo by Elaine Thompson/AP/Shutterstock