U.S. Markets close in 2 hrs 43 mins

4 Chemical Stocks Poised to Outshine Q3 Earnings Estimates

Anindya Barman

The chemical industry is housed within the broader Zacks Basic Materials sector. Earnings picture for the Basic Materials sector for the third quarter looks glum as it is among the Zacks sectors that are expected to see a double-digit decline in earnings in the September quarter. Overall earnings for the sector are projected to fall 23% on 7.3% lower revenues, per the latest Earnings Outlook.

Demand weakness is likely to have impacted performance of chemical companies in the third quarter. The U.S.-China trade conflict has led to a slowdown in industrial activities across Asia and Europe, hurting demand for chemicals.

Chemical makers are seeing weak demand in China owing to a slowing economy associated with the trade war. Notably, the trade friction has led to a slowdown in demand in the automotive market (a major chemical end-use market) in China.

Economic conditions have, in particular, weakened across emerging economies. Moreover, Brexit and other concerns such as trade war and a slowdown in the automotive industry have led to a slowdown in the European economy.

Chemical makers are also exposed to cost pressure associated with raw materials. Third-quarter results are expected to continue to reflect the impact of input cost inflation, albeit to a lesser extent than what was witnessed during the first half of 2019.

Nevertheless, chemical makers should benefit from strategic measures, including cost-cutting and productivity improvement, synergies from acquisitions and actions to raise selling prices. A number of companies are taking aggressive price increase actions in an inflationary environment. Benefits of these initiatives might be reflected in their third-quarter results.

How to Pick Winners?

Given the large number of players operating in the chemical space, picking the right stocks is apparently not an easy task. But our proprietary methodology makes it fairly simple. One can trim down the list with the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Zacks Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter.

Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining stocks that have high chances of delivering earnings surprises in their next announcements. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as much as 70%.

Our Choices

Below we list four chemical stocks that have the right combination of elements to pull off positive surprises this earnings season:

Quaker Chemical Corporation KWR has an Earnings ESP of +4.12% and sports a Zacks Rank #1. The company beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, delivering an average positive surprise of around 2.4%. It is expected to report Q3 results on Nov 7.

Quaker Chemical Corporation Price and EPS Surprise

 

Quaker Chemical Corporation Price and EPS Surprise

Quaker Chemical Corporation price-eps-surprise | Quaker Chemical Corporation Quote

 

Trinseo S.A. TSE has an Earnings ESP of +12.33% and carries a Zacks Rank #3. It is expected to report Q3 results on Nov 14. You can see the complete list of today’s Zacks #1 Rank stocks here.

Trinseo S.A. Price and EPS Surprise

 

Trinseo S.A. Price and EPS Surprise

Trinseo S.A. price-eps-surprise | Trinseo S.A. Quote

 

LyondellBasell Industries N.V. LYB has an Earnings ESP of +1.44% and a Zacks Rank #3. It is expected to report Q3 results on Oct 29.

LyondellBasell Industries N.V. Price and EPS Surprise

 

LyondellBasell Industries N.V. Price and EPS Surprise

LyondellBasell Industries N.V. price-eps-surprise | LyondellBasell Industries N.V. Quote

Novozymes A/S NVZMY, carrying a Zacks Rank #3, has an Earnings ESP of +2.33%. The Zacks Consensus Estimate for earnings for Q3 has increased 2.4% over the past month. The company is scheduled to report Q3 results on Oct 23.

Novozymes A/S Price and EPS Surprise

 

Novozymes A/S Price and EPS Surprise

Novozymes A/S price-eps-surprise | Novozymes A/S Quote

 

Free: Zacks’ Single Best Stock Set to Double

Today you are invited to download our just-released Special Report that reveals 5 stocks with the most potential to gain +100% or more in 2020. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

This pioneering tech ticker had soared to all-time highs and then subsided to a price that is irresistible. Now a pending acquisition could super-charge the company’s drive past competitors in the development of true Artificial Intelligence. The earlier you get in to this stock, the greater your potential gain.

Download Free Report Now >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
LyondellBasell Industries N.V. (LYB) : Free Stock Analysis Report
 
Trinseo S.A. (TSE) : Free Stock Analysis Report
 
Novozymes A/S (NVZMY) : Free Stock Analysis Report
 
Quaker Chemical Corporation (KWR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research