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LyondellBasell (LYB) Preview: Another Earnings Beat Coming?

Zacks Equity Research

LyondellBasell Industries LYB is set to release its third-quarter 2015 results ahead of the bell on Oct 23.

Last quarter, the Netherlands-based chemical giant delivered an 8.14% positive earnings surprise as it benefited from abundant supply of low-cost natural gas. However, revenues fell by double-digits year over year, affected by lower prices of the company’s products.

LyondellBasell has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of 16.40%. Is the company poised for another winning quarter?

Let’s see how things are shaping up for this announcement.
 
Factors to Consider
 
LyondellBasell, in its second-quarter 2015 call, said that it expects favorable operating environment in the third quarter including favorable pricing for natural gas and natural gas liquids (NGLs).

LyondellBasell is expected to gain from ethylene and polyethylene expansions that it completed in 2014. The company is executing its expansion projects to leverage the U.S. NGLs advantage. It remains on track with its multi-plant ethylene expansion programs across Channelview, La Porte and Corpus Christi facilities in Texas which benefit from shale gas production.

The company has already completed an 800-million pound per year expansion at its La Porte site and a 250-million pounds per year expansion at the Channelview facility (initial production already started at the site). It expects the addition of 800 million pounds of capacity at the Corpus Christi plant to complete by second-quarter 2016. The expansion program, when in full swing, is expected to expand annual ethylene capacity by as much as 2.3-2.4 billion pounds in North America.

However, LyondellBasell is exposed to volatility in raw material and energy costs that account for a major portion of its operating costs. It continues to face headwinds from a volatile crude oil price environment. Moreover, maintenance turnaround across the company’s La Porte acetyls and French PO/TBA plants is expected to affect production of propylene oxide, oxyfuels, methanol, vinyl acetate monomer and acetic acid and unfavorably impact EBITDA in the intermediates and derivative business in the September quarter.

Earnings Whispers

Our proven model shows that LyondellBasell is likely to beat earnings in the third quarter as it has the right combination of two key components. Note that a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) to have a significantly higher chance of beating earnings.

Zacks ESP: The Earnings ESP for LyondellBasell is +2.77%. This is because the Most Accurate estimate stands at $2.60, while the Zacks Consensus Estimate is pegged at $2.53.

Zacks Rank: LyondellBasell’s Zacks Rank #3 when combined with a positive ESP makes us reasonably confident of an earnings beat.

Note that stocks with Zacks Rank of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Other Stocks That Warrant a Look
 
Here are some stocks in the chemical space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

Koppers Holdings Inc. KOP has an earnings ESP of +3.08% and a Zacks Rank #2.

Orion Engineered Carbons SA OEC has an Earnings ESP of +14.29% and a Zacks Rank #3.
 
The Chemours Company CC has an Earnings ESP of +6.90% and a Zacks Rank #3.

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KOPPERS HOLDNGS (KOP): Free Stock Analysis Report
 
LYONDELLBASEL-A (LYB): Free Stock Analysis Report
 
ORION ENGINRD (OEC): Free Stock Analysis Report
 
CHEMOURS COMPNY (CC): Free Stock Analysis Report
 
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