What Chemical Companies and the Home Builders Have in Common
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Every day I click open my Fool Watch List to see who is hanging out at the top, and who is floundering around at the bottom. A few days ago there was a ticker name near the top that had never been there before - HUN.
What was the Huntsman Corporation (NYSE: HUN), doing at the top of my most changed list?
I had started following Huntsman out of curiousity a few weeks ago when I had researched the stock holdings of the presidential candidates. Beyond that I hadn't taken much time to get to know this stock yet. Wanting to know why HUN would be would be in the green as one of the most changed stocks out of over 50 on my list, I pried further.
What I found was conflicting headlines-
Mad Money: Lightning Round: Peabody Energy, Huntsman, Caribou Coffee and More (hold)
Bloomberg: Huntsman, Celanese Seen as Cheap Takeovers
Seeking Alpha: 4 Stocks That Wall Street Hates, 1 It Loves (HUN = hate)
CNBC: Your First Move For Thursday February 2nd (buy HUN)
That’s one hold, one possible takeover, one hate, and one buy. No wonder HUN is one of the most changed stocks on my list! Nobody knows what to do with it!
Time for some deeper research and understanding!
All signs indicate the home building industry is picking up. In fact, the experts that be are predicting a record four year high in home-building over the next year and a half. That good news is reflected strongly in the shares and success of several chemical companies, including Huntsman.
As the US economy improves, and home-building improves, builders buy paint, insulation, epoxy, and other things that come from companies like Huntsman, Solutia Inc (UNKNOWN: SOA.DL), and Eastman Chemical Co (NYSE: EMN). Good home sales means good profits for Huntsman et al.
Huntsman Corporation manufactures differentiated chemical products and inorganic and commodity chemical products. Or in plain English that means they make paints and coatings, insulation, fancy adhesives, Styrofoam, and things used in aerospace and in the building of homes. (Just not for homes built in space.)
Chemical companies are hot right now. For instance, Eastman just enjoyed a great quarter, and went on a shopping spree, buying up other companies, including Solutia, (and their shares skyrocketed 10%). Eastman acquired another petrochemical producer, and a plasticizer company earlier in the year. Eastman reported revenue of $1.72 billion in the 4th quarther and sales were 18% higher than the prior-year quarter's $1.46 billion.
Solutia saw their fourth quarter end by beating expectations on revenues and earnings per share. Solutia saw a 7.6% higher revenue in the 4th quarter of $526 million (beating analysts expectations).
As other companies start looking around to expand their chemical businesses to fulfill new construction needs, Huntsman will be the belle of the ball. Huntsman may, possibly, conceivably attract takeover offers at least 40% above last week’s share prices (prev. close $13.39, open $14.05, current $13.67). Huntsman's third quarter revenue jumped 24% to $3 billion from $2.4 billion a year ago. And all divisions of the company saw an increase in revenue except for Textile Effects. With such great numbers, and a product that other companies will want as the economy improves, Huntsman is the one to watch.
Naturally, Huntsman is politely not commenting on whether or not the company is for sale.
What to take away from this?
If the company really does sell for 40% above the current share prices, current shareholders will be sitting pretty.
Dividend investors will be thrilled with their returns.
Bullish short-term investors may want to jump in quick and hope for a very fast increase.
But wait, why did Seeking Alpha list it as a “hate?”
“Due to uncertainty in end market demand in technology and fragility in the industrial economy, Seagate, Dow, and Huntsman, are all rated "holds".
“Consensus estimates for Huntsman's EPS forecast that it will grow by 101.2% to $1.67 in 2011 and then by 13.2% and 25.9% in the following two years. Assuming a multiple of 8x and a conservative 2012 EPS of $1.85, the rough intrinsic value of the stock is $14.80, implying 16.6% upside.”
If you aren’t an optimistic, risk taker, this probably isn’t the stock for you. If you like the possibility of a huge increase, and the excitement of a takeover- look no further. Huntsman welcomes you.
The Motley Fool has no positions in the stocks mentioned above. ErinAnnie has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.