Jefferies Upgrades, Downgrades, and Tweaks Estimates and Price Targets on Chemical Sector

Jefferies is anticipating that many companies in the chemical sector are doing some tightening up in their supply chains and as a result cut their estimates and price target on the companies.

The firm reports that shares of companies in the chemical sector have been overly volatile on "what if scenarios and arbitrary trough multiples applied to normalized earnings." Jefferies notes that its new estimates reflect a destocking cycle in 2012 with weaker volumes and pension headwinds, which will be largely offset by raw material relief, structural improvements, and M&A.

Jefferies encourages investors to take advantage of dips in shares of Praxair (NYSE: PX), Ecolab (NYSE: ECL), Ashland (NYSE: ASH), LyondellBasell Industries (NYSE: LYB), and Solutia Inc. (NYSE: SOA) as they will continue to grow over the next 2-3 years.

Over the near-term, the firm believes that shares of Airgas (NYSE: ARG), Ashland, Huntsman Corp. (NYSE: HUN), and LyondellBasell Industries offer the best risk to reward ratio in the chemical sector.

The firm highlights that Cabot Corp. (NYSE: CBT), Du Pont (NYSE: DD), W.R. Grace (NYSE: GRA), and Quaker Chemical (NYSE: KWR) are all companies that are making structural improvements with solid cyclical leverage.

Jefferies upgraded shares of Ecolab (ECL) today a Buy rating from its previous rating of Hold. It also raised its price target from $53 to $58 and cut its 2012 EPS estimate from $2.90 to $2.80. The firm downgraded shares of Cytec Industries (NYSE: CYT) today to a Hold rating from its previous rating of Buy and cut its price target from $67 to $47. It also reduced its 2012 EPS estimate from $4.20 to $3.40.

Jefferies cut its price target and estimates on shares of:

• Albemarle Corp. (NYSE: ALB) from $77 to $75 and its 2012 EPS estimate from $5.50 to $5.05.
• Air Products and Chemicals (NYSE: APD) from $111 to $104 and its 2012 EPS estimate from $6.55 to $6.00.
• Airgas (ARG) from $80 to $76.
• Ashland (ASH) from $79 to $67 and raised its 2012 EPS estimate from $4.55 to $5.20.
  
• Cabot Corp. (CBT) from $56 to $44 and its 2012 EPS estimate from $4.15 to $3.25.
• Du Pont's (DD) price target was reaffirmed at $64, but its 2012 EPS estimate was cut from $4.90 to $4.35.
  
• W.R. Grace (GRA) from $62 to $52 and its 2012 EPS estimate from $4.00 to $3.75.
• Huntsman Corp.'s (HUN) price target was reiterated at $21 while its 2012 EPS estimates was cut from $2.15 to $2.05.
• Quaker Chemical (KWR) from $51 to $48 and its 2012 EPS estimate from $3.85 to $3.55.
• LyondellBasell Industries (LYB) from $56 to $48 and its 2012 EPS estimate from $5.45 to $3.60.
• 3M Company (NYSE: MMM) from $120 to $104 and its 2012 EPS estimate from $6.80 to $6.05.
• OMNOVA Solutions (NYSE: OMN) from $10 to $9 and its 2012 EPS estimate from $0.85 to $0.80.
• Praxair's (PX) price target was reaffirmed at $122, but its 2012 EPS estimate was cut from $6.30 to $6.00.
• Solutia's (SOA) price target was reiterated at $30, but its 2012 EPS estimate was cut from $2.55 to $2.50.
  

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