Top Chemicals Stocks Favored By Jefferies

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In a new research report on the chemicals industry favored, analysts at Jefferies wrote that Huntsman (NYSE: HUN), PPG Industries (NYSE: PPG) and 3M (NYSE: MMM).

These came out on top in three metrics that the analysts consider vital to ongoing performance.

The report points out that companies with improving EBITDA (earnings before interest, tax, depreciation and amortization) margins outperformed their peers by 27 percent a year on average. Those with positive free cash flow outperformed their peers by nearly 19 percent on average, in most years. And companies with significant improvements in return on equity outperformed their peers by 18 percent a year.

Below we take a look at how Huntsman, PPG Industries and 3M have fared and what analysts expect from them.

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Huntsman

This maker of organic and inorganic chemical products posted record adjusted EBITDA for the fourth quarter that was 28 higher than in the year-ago period. It sports a market capitalization of more than $5 billion and offers a dividend yield of around 2.2 percent. Its long-term earnings per share (EPS) growth forecast is about seven percent.

The number of shares sold short in Huntsman represented more than four percent of the float as of the most recent settlement date. That was the lowest level of short interest since the end of October. It would take more than two days to close out all short positions.

Eight of the 13 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares. Their mean price target, or where the analysts think the share price will go, is about six percent higher than the current share price. The Jefferies price target indicates about 16 upside potential.

Though shares fell more than eight percent in January, they have recovered about seven percent so far in February. The share price is once again above the 50-day and 200-day moving averages. The stock has outperformed competitor Dow Chemical, as well as the broader markets, over the past six months.

PPG Industries

This maker of industrial and architectural coatings recently announced that it would acquire the Hi-Temp Coatings Technology company. PPG has a market cap near $26 billion. Its dividend yield is about 1.3 percent, and the return on equity is more than 67 percent.

The short interest in PPG was less than one percent of the total float as of the end of January. The number of shares sold short has been relatively steady at a little over one million since last summer. The days to cover has been less than two since the end of November.

The consensus recommendation has been to buy shares for more than three months. Eight of the 21 polled analysts rate the stock at Strong Buy. The mean price target indicates about nine potential upside, but the Jefferies analysts see PPG shares gaining almost 13 percent this year.

The share price pulled back less than four percent in January but has mostly recovered since. It is above the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed not only the S&P 500, but the likes of DuPont as well.

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3M

The St. Paul, Minnesota-based conglomerate recently announced a new $12 billion share repurchase plan. The company has a market cap around $87 billion, and it has a dividend yield near 2.6 percent. Its long-term EPS growth forecast is about 10 percent, and the return on equity is near 26 percent.

After shrinking about 18 percent year to date, by the end of last month the number of shares sold short reached its lowest level in the past year. That represented less than one percent of the total float. The days to cover fell to less than two for the first time in at least a year.

Only six of the 19 surveyed analysts recommend buying shares, but only one rates the stock at Underperform. They feel shares have some headroom as their mean price target is about seven percent higher than the current share price. The Jefferies price target suggests there is more than 12 potential upside.

Here too shares fell in January (along with the broader markets), by more than seven percent, but it has started to recover. The share price has yet to retake the 50-day moving average. Over the past six months, the stock has outperformed the Dow Jones Industrial Average and the S&P 500. Yet it has underperformed the others featured here.

At the time of this writing, the author had no position in the mentioned equities.

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