Methanex Upgraded to Strong Buy

Zacks Equity Research
March 12, 2014

On Mar 12, Zacks Investment Research upgraded chemical company, Methanex Corporation (MEOH), to a Zacks Rank #1 (Strong Buy).

Why Upgraded?

Methanex reported solid fourth-quarter 2013 results on Jan 29 riding on higher methanol pricing and healthy demand. The company posted a profit of $128 million or $1.32 per share in the quarter versus a loss of $140 million or $1.49 per share reported a year ago. Revenues increased roughly 32% year over year to $881 million in the quarter.

Methanex’s adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) amounted to $245 million in the quarter, up roughly 106% year over year.

Increased production from Methanex’s New Zealand, Egyptian and Chilean plants coupled with strong methanol pricing, contributed to robust EBITDA and earnings results in the fourth quarter. Healthy methanol demand amid industry supply constraints drove methanol pricing higher.

Following the release of fourth-quarter results, the Zacks Consensus Estimate for 2014 for Methanex has gone up 16.6% to $6.18 per share. The Zacks Consensus Estimate for 2015 has also increased 5.2% to $6.64 per share.

Methanex’s completion of the sale of roughly 10% equity shares of its Egyptian joint venture — Egyptian Methanex Methanol Company S.A.E. (EMethanex) — to Arab Petroleum Investments Corporation (:APICORP) for $110 million turned out to be a mutually beneficial transaction. The deal is expected to increase APICORP’s investment scope in the Arab energy industry, including downstream and midstream sectors and Methanex will benefit from APICORP's growing support.

Methanex has taken up a number of steps to boost capacity. The company progressed well with the relocation of the first Chilean plant to Geismar, La., and it is proceeding on schedule and on budget. The relocation of the second Chilean plant to Geismar, which involved costs of about $550 million, is expected to come online by 2016.

The shifting of two plants to Geismar coupled with Methanex’s continued initiatives taken to increase methanol production by restarting two methanol plants in New Zealand, has provided the company the potential to increase its operating capacity and pursue other strategic growth opportunities over the next few years. This, in turn, will contribute to cash generation and create significant value for shareholders.

Methanex’s healthy financial position, strong global supply network and competitive cost position are expected to strengthen its position as the global leader in the methanol industry and enable it to continue delivering incremental returns to shareholders.

Other Stocks to Consider

Other companies in the chemical industry worth considering include PPG Industries Inc. (PPG), Cytec Industries Inc. (CYT) and The Dow Chemical Company (DOW), all of which hold a Zacks Rank #2 (Buy).

Read the Full Research Report on PPG
Read the Full Research Report on DOW
Read the Full Research Report on MEOH
Read the Full Research Report on CYT

Zacks Investment Research