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%.
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-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-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-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-eps-surprise | Novozymes A/S Quote
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