Barclays on U.S. Chemicals: The Run's Not Done

Barclays on U.S. Chemicals: The Run's Not Done

Barclays analyst, Duffy Fischer, said, "We initiate coverage of the U.S. chemicals sector with a Positive rating. Chemical stocks, and their fundamentals, have had a good run over the past 18 months, but have pulled back recently on concerns about weakening trends. We expect industry destocking to persist for another few months and would anticipate some weakening of prices and margins as well. There will likely be continued earnings estimate revisions downward from sell-side analysts, more stock weakness, and perhaps even some calls that the cycle is over. We believe, however, the recent rough patch and the potential noise over the next couple of months will come to be seen as just a correction. Indeed, several key chemical chains are not yet at the cycle midpoint."

"Three key catalysts give the stocks more room to run, in our view: 1) the cycle should be positive well into 2014, 2) shale gas should continue to boost earnings of U.S. producers, 3) strong cash flows and cash on the balance sheet are most likely to be put to work. Valuations are attractive and we would be buyers as others retreat. We initiate coverage of 10 stocks. Our top pick is LyondellBasell (NYSE: LYB) (Overweight, $43 PT); we also favor Air Products (NYSE: APD) (Overweight, $97 PT) and Celanese (NYSE: CE) (Overweight $49 PT)."

Barclays initiates the following stocks at Equalweight: Dow Chemical (NYSE: DOW) (PT $34), DuPont (NYSE: DD) (PT $52), Eastman Chemical (NYSE: EMN) (PT $92), PPG Industries (NYSE: PPG) (PT $82), Praxair (NYSE: PX) (PT $105), Sherwin-Williams (NYSE: SHW) (PT $81) and Valspar (NYSE: VAL) (PT $35)

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