The chemical industry serves as a vital cornerstone for a broad spectrum of sectors, including automotive, construction, electronics, healthcare, agriculture, and beyond, playing a pivotal role in global manufacturing. This extensive array of applications underscores its significance and endows the chemical industry with remarkable resilience, even in the face of economic uncertainties.
Against the promising backdrop, in this article, we explore the fundamentals of three chemicals stocks, Cabot Corporation (CBT), PPG Industries, Inc. (PPG), and CSW Industrials, Inc. (CSWI), which appear well-equipped to capitalize on the industry tailwinds.
Despite facing macroeconomic challenges and volatile market conditions, the chemical industry has maintained consistent growth and continues to be a crucial catalyst for the global economy.
For instance, according to Statista, the global chemical industry has demonstrated steady revenue growth over the years. Despite a notable setback caused by the pandemic, leading to a 35% revenue decline in 2020, it rebounded strongly in 2021, achieving a record-breaking revenue of $4.70 trillion.
Furthermore, the chemical industry is currently in a state of transformation, with companies embracing sustainable practices and eco-friendly processes to mitigate the environmental impact of chemical manufacturing.
The incorporation of cutting-edge technologies and scientific innovations is steadily enhancing the chemical sector's efficiency and efforts toward decarbonization. This transition toward sustainability represents a significant stride in the industry's commitment to environmental responsibility.
Moreover, the chemical industry’s prospects are further bolstered by its increasing reliance on Artificial Intelligence (AI). By harnessing the power of AI, the chemical industry aims to expedite the creation of cost-effective formulations, improve supply chain effectiveness, and promote sustainability endeavors. The AI in chemicals market is expected to reach $16.94 billion by 2032, growing with a CAGR of 31.9%.
The global chemicals market saw substantial expansion, rising from $4.70 trillion in 2022 to $5.08 trillion in 2023, marking an impressive CAGR of 8.1%. Looking ahead, the market is anticipated to attain $6.85 trillion by 2027, with a projected CAGR of 7.8%.
In light of such encouraging trends and prospects, let us dive into the fundamentals of the featured Chemicals stocks, beginning with number three.
Stock #3: Cabot Corporation (CBT)
CBT operates as a specialty chemicals and performance materials company. The company operates through two segments, Reinforcement Materials and Performance Chemicals.
On September 18, CBT announced its accomplishment of International Sustainability and Carbon Certification (ISCC) PLUS certification at six of its operational sites. Among carbon black manufacturers, CBT currently holds the distinction of having the most ISCC PLUS certified sites, with plans to extend this certification across its global network.
Obtaining ISCC PLUS certification demonstrates CBT’s ongoing commitment to promoting circularity and traceability. By doing so, CBT aims to assist its customers in reaching their sustainability objectives by providing sustainable solutions on a global level.
On September 8, CBT paid its shareholders a quarterly dividend of $0.40 per share on all outstanding shares of the Corporation’s common stock.
The company’s annual dividend of $1.60 translates to a 2.31% yield on the current share price. While its four-year average dividend yield is 2.73%. Its dividend payouts have grown at CAGRs of 3.2% and 3.6% over the past three and five years, respectively. Also, it has a record of 11 years of consecutive dividend growth.
CBT’s trailing-12-month levered FCF margin of 6.23% is 68.4% higher than the 3.70% industry average. Its trailing-12-month ROTC of 12.61% is 125.4% higher than the industry average of 5.60%. Likewise, the stock’s trailing-12-month ROCE of 29.61% is 249.2% higher than the 8.48% industry average.
For the fiscal third quarter, which ended on June 30, 2023, CBT’s net sales and other operating revenues amounted to $968 million, while its gross profit came in at $223 million. During the same period, the company’s net income and EPS amounted to $90 million and $1.43, respectively.
Additionally, its cash and cash equivalents stood at $220 million, up 6.8% compared to $206 million as of September 30, 2022.
Analysts expect CBT’s revenue and EPS for the fourth quarter (ending September 2023) to be $996.38 million and $1.48, respectively. Moreover, the company’s EPS is projected to improve by 4.9% annually over the next five years.
The stock has gained 3.4% over the past nine months to close the last trading session at $68.53.
CBT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Quality. In the 83-stock Chemicals industry, it is ranked #16. Click here to see CBT’s ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock #2: PPG Industries, Inc. (PPG)
PPG manufactures and distributes paints, coatings, and specialty materials worldwide. The company operates through Performance Coatings and Industrial Coatings segments.
On September 14, PPG completed a $2.70 million expansion initiative at its powder coatings plant in Sumaré, Brazil, effectively increasing its production capacity by 40%. This move aligns with PPG's strategic plan to strengthen five of its powder coatings manufacturing facilities in both the United States and Latin America.
This development underscores PPG’s commitment to meeting the growing worldwide demand for powder coatings through rapid investments in research and development, facility expansion, and acquisitions, which are expected to contribute significantly to its future growth.
On August 2, PPG unveiled its center of excellence at its Quattordio, Italy site, aimed at enhancing the efficiency of automotive color development and application. This $2.60 million investment consolidates color development and application into a unified process, resulting in reduced lead times for introducing new colors to the market, cost optimization, and improved color performance.
Additionally, this facility leverages the power of AI tools to enhance color development and quality control procedures. Among these tools is a statistical and machine learning system capable of minimizing the need for color adjustment iterations, thus leading to cost savings and shorter development cycles for both basecoats and colored products.
The stock’s trailing-12-month ROCE of 19.15% is 125.8% higher than the 8.48% industry average. Its trailing-12-month levered FCF margin of 5.55% is 50.1% higher than the industry average of 3.70%. Furthermore, PPG’s trailing-12-month cash per share of $5.21 is 228.9% higher than the $1.59 industry average.
For the fiscal second quarter that ended June 30, 2023, PPG’s net sales increased 3.9% year-over-year to $4.87 billion. The company’s attributable net income and earnings per share grew 11.1% and 11.4% from the prior-year quarter to $490 million and $2.06, respectively.
In addition, during the same period, the company’s current assets stood at $8.07 billion, up 12.5% compared to $7.17 billion as of December 31, 2022. Moreover, its cash and cash equivalents amounted to $1.23 billion, increasing 11.7% from $1.10 billion as of December 31, 2022.
The consensus revenue estimate of $4.65 billion for the fiscal third quarter (ending September 2023) reflects a 4.1% rise year-over-year. The consensus EPS estimate of $1.93 for the current quarter indicates a 16.4% year-over-year improvement. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 9.7% to close the last trading session at $130.80.
PPG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. Within the same industry, it is ranked #9. Click here to see the other ratings of PPG for Value, Momentum, and Stability.
Stock #1: CSW Industrials, Inc. (CSWI)
CSWI operates as a diversified industrial company in the United States and internationally. It operates through three segments: Contractor Solutions; Engineered Building Solutions; and Specialized Reliability Solutions.
On August 11, CSWI paid its shareholders a quarterly dividend of $0.19 per share. The company’s annual dividend of $0.76 translates to a 0.43% yield on the current share price. While its four-year average dividend yield is 0.54%. Its dividend payouts have grown at a CAGR of 10.1% over the past three years.
CSWI’s trailing-12-month net income margin of 12.82% is 106.4% higher than the 6.21% industry average. Its trailing-12-month ROTA of 9.45% is 87.1% higher than the industry average of 5.05%. Likewise, the stock’s trailing-12-month levered FCF margin of 14.47% is 164.9% higher than the 5.46% industry average.
For the first quarter of fiscal 2024, CSWI’s revenues increased 1.7% year-over-year to $203.36 million, while the company’s gross profit rose 6.6% from the year-ago value to $92.17 million.
In addition, the company’s attributable net income amounted to $31.06 million and $1.97 per share, up 4.8% from the prior-year quarter, respectively. Also, its operating income improved 10.6% from the year-ago value to $45.21 million.
Street expects CSWI’s revenue and EPS for the second quarter (ending September 2023) to increase 8.2% and 25.8% year-over-year to $206.90 million and $1.98, respectively. Moreover, the company topped its EPS estimates in three of the trailing four quarters, which is promising.
CSWI’s shares have surged 50.1% over the past nine months and 53.7% year-to-date to close the last trading session at $178.18.
It’s no surprise that CSWI has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Momentum, Stability, and Quality. Out of 83 stocks in the same industry, it is ranked #7.
In addition to the POWR Ratings we’ve stated above, we also have CSWI’s ratings for Growth and Value. Get all CSWI ratings here.
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PPG shares were trading at $128.63 per share on Thursday afternoon, down $2.17 (-1.66%). Year-to-date, PPG has gained 3.72%, versus a 14.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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