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Element Solutions (ESI) Up 26% in 6 Months: What's Driving It?

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·3 min read
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Element Solutions Inc.'s ESI shares have shot up 26.1% over the past six months against its industry’s decline of 7.5%. The company has also topped the S&P 500’s 13.5% growth over the same period.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Let’s dive into the factors behind this Zacks Rank #3 (Hold) stock’s price surge.

What's Driving the Stock?

Strong results in the second quarter and upbeat prospects have contributed to the company’s share price increase. Its adjusted earnings of 35 cents per share in the quarter beat the Zacks Consensus Estimate of 34 cents. It generated net sales of $586.6 million, up around 52% year over year.

The company announced an increase in its EBITDA guidance for 2021. It raised the guidance to the band of $505-$520 million from $500-$510 million expected earlier. It also expects adjusted EPS of at least $1.35 for the year.

For the third quarter, the company sees adjusted EBITDA in the range of $125-$130 million. It expects the impact of rising logistics costs to persist in the third quarter. However, it expects its pricing actions in the wake of raw material inflation to support margins.

Element Solutions is benefiting from strategic acquisitions, cost management measures and strong demand in its end markets. It is seeing continued strength in its high-end electronics business.

The company stands to expand from its strategic acquisitions. The recent acquisition of H.K. Wentworth is expected to boost growth in its electronics portfolio. Also, the recently announced buyout of Coventya will expand its offerings across industrial surface treatment markets and offer significant synergies. The Kester acquisition has added capabilities and scale to its existing electronics assembly materials business. Moreover, the DMP buyout has expanded Element Solutions’ investment in technology to offer innovative solutions. The cash proceeds from the divestment of its Agricultural Solution Unit enable the company to invest in strategic markets and pursue mergers and acquisitions.

Element has been following various reorganization and cost management measures that have contributed to cost savings and profits. Continued cost discipline and other strategic actions are expected to support margins and act as a tailwind for 2021.

The company believes in strategic usage of cash and remains committed to boosting shareholders' returns. It generated $72 million of free cash flow in the second quarter of 2021. It expects to generate free cash flow of roughly $285 million for full-year 2021. The company continues to look for opportunities to deploy excess capital.

Earnings estimates for Element have also been modestly going up over the past three months. The Zacks Consensus Estimate for 2021 earnings has increased 1.5%. The consensus mark for 2022 earnings has also increased 2.7% over the same time frame. The favorable estimate revisions instill investors’ confidence in the stock.

Element Solutions Inc. Price and Consensus

Element Solutions Inc. Price and Consensus
Element Solutions Inc. Price and Consensus

Element Solutions Inc. price-consensus-chart | Element Solutions Inc. Quote

Stocks to Consider

Better-ranked stocks in the basic materials space include BASF SE BASFY, Aperam APEMY and Avient Corporation AVNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BASF has a projected earnings growth rate of 96.7% for the current year. The company’s shares have rallied 24.9% over a year.

Aperam has a projected earnings growth rate of 429.8% for the current year. The company’s shares have surged 100.3% over a year.

Avient has a projected earnings growth rate of 75.2% for the current year. The company’s shares have climbed 79.1% over a year.


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Element Solutions Inc. (ESI) : Free Stock Analysis Report

BASF SE (BASFY) : Free Stock Analysis Report

Aperam (APEMY) : Free Stock Analysis Report

Avient Corporation (AVNT) : Free Stock Analysis Report

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