Chemicals Scorecard:December Scorecard

类别:投资策略 机构:德意志银行 研究员:David Begleiter 日期:2018-01-08

Lyondell and Axalta outperformed in December.

    US Chemicals were flat in December vs S&P up 1.0%. Notable outperformersin December were Lyondell (LYB, +5.4%, Hold) and Axalta (AXTA, +2.2%, Buy).

    Lyondell shares continue to outperform following Hurricane Harvey on delayednew US ethylene capacity, hurricane-induced PE pricing strength, andincreased US ethylene cost advantage due to rising oil prices. Axalta providedits in-line ’18 outlook with the midpoint of EBITDA guidance 2% belowconsensus. However, management expressed confidence in its Refinishbusiness to return to normal volume growth and higher pricing. Axalta remainsopen to transformative deals (MOE or outright sale).

    Still not too late to own Westlake, reinstating with a Buy.

    It’s been an excellent 2017 for Westlake. Driven by the transformative Axiallacquisition, strengthening chlor-alkali fundamentals, delays in new USethylene capacity, hurricane-induced pricing strength in PE and rising oilprices, Westlake shares are up 86% YTD. However, as we head into ‘18 withthe US ethylene downturn expected to begin soon, caustic soda prices up 25%YTD and valuation in-line with peers, the natural question is “Is it too late toown Westlake?” Despite the share appreciation, we believe it is not too late toown Westlake shares. We thus reinstated coverage with a Buy and PT of $115.

    Upgrading Praxair to Buy on substantial value creation from the Linde merger.

    We upgraded Praxair to Buy from Hold. Underpinning our positive view onPraxair is 1) accelerating volume growth over the last 3 quarters, 2) improvedpricing discipline in the industrial gas industry and 3) increased confidence thatNew Linde can achieve i) its $1B of targeted cost savings plus ii) furtherimprovements as Praxair management optimizes the Linde assets and coststructure. While New Linde is trading in-line with its industrial gas peers at11.7x ‘18E EBITDA, we believe New Linde could trade at a modest premium toits gas peers owing to superior synergy and operating driven EBITDA growthover the next 3-plus years.

    Sherwin-Williams: a strong growth story but fairly valued.

    Sherwin's ability to capitalize on construction growth to drive sales, earningsand cash flow growth stands out against peers, especially the consistency ofthis growth over time. The Valspar acquisition broadens Sherwin's portfolioaway from its core strength; however, management's strong track recordargues that the company should be able to squeeze significant value from thecombination. While we recognize the organic and synergy growth potential ofthe story, we think it is also widely recognized by investors and thereforepriced in. This along with risks such as raw materials and numbers volatilityaround Valspar led us to initiate coverage with a Hold rating with a PT of $420.

    Valuations look reasonable, but macro weakness may limit upside.

    Today’s 19.7x fwd P/E multiple for US Chemicals (ex-ag) is 32% above the 10-yr avg. of 14.9x. We view US Chemicals trading at a 4% discount to the S&P500 vs. a 10-yr avg. of a 4% discount as reasonable given structurally low USethane prices.

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