Huntsman Corporation Is Fundamental To Economic Rebound
Huntsman Corporation (NYSE:HUNT) is another example of the fundamental nature of the economic rebound we are now in. When the pandemic struck economic activity ie manufacturing stopped for two whole months but spending didn’t. Not consumer spending. Consumer spending was vibrant and bolstered by fiscal stimulus and that led to an uptick in demand. Shelves were cleared, inventories fell, and now the stage is set for a major manufacturing rebound. There has to be, demand is still strong and inventories are still falling. And that is leading to demand for packaging, shipping, and industrial chemicals. The very chemicals produced by the Huntsman Corporation.
Huntsman Corporation manufactures a wide range of organic chemicals in four categories. The Polyurethanes segment makes … polyurethane and other derivatives necessary in many manufacturing processes. This segment is seeing additional demand from homeowners and craftsmen (you know, people at home spending money on projects instead of airplane tickets). The Advanced segment makes epoxies and resins along with acrylic and curing agents which have also seen an uptick in demand. The Textiles segment makes dyes and inks while the Performance segment makes specialty chemicals for or under license from other businesses.
Huntsman Beats, Provides Positive Outlook
Huntsman was not immune to the pandemic, don’t get me wrong, but the rebound from the 2nd quarter is strong and the outlook is positive. The company reported $1.51 billion in top-line revenue which is down 10.7% from last year. The good news is that revenue grew 20.8% from the previous quarter and beat the consensus by 275 basis points. With strengthening trends in most segments and the general outlook for economic activity stable the next quarter should be even better. The only caveat is that there is a headwind. Falling chemical prices have been hurting Huntsman’s revenue for years and that was a major cause of weakness in this quarter as well.
Peter R. Huntsman, Chairman, President and CEO, commented: "The third quarter proved to be better than we had anticipated with improving conditions in almost all of our businesses except for commercial aircraft. Although the global community continues to face significant challenges around COVID-19, we see positive momentum entering the fourth quarter. We remain fully on track in integrating our two downstream acquisitions completed earlier this year and in delivering in excess of $100 million of annualized synergies”.
The bottom-line results are more impressive. The company’s cost-cutting and repositioning efforts led to a 39% increase in YOY GAAP income. At the EPS level, the results a little mixed in regards to the consensus estimates but no less positive in their implication. The GAAP EPS missed consensus by $0.04 but nearly doubled from last year while adjusted EPS fell from last year but beat the consensus.
Huntsman Is A High-Yielding Mid-Cap
Huntsman is a high-yielding mid-cap stock delivering 2.7% in annual returns with shares trading near $24. The payout ratio is a bit high this year but that can be ignored. Looking to next year the rebound is expected to accelerate putting the distribution at roughly 40% of consensus earnings. Add to that a near-fortress balance sheet and the possibility of dividend increases creep into the picture. This company is not a regular or consistent distribution-grower but it has been a steady payer over the last decade with only increases in its history.
“During the three months ended September 30, 2020, our adjusted free cash flow from continuing operations was $189 million as compared to $194 million in the prior-year period. As of September 30, 2020, we had approximately $2.5 billion of combined cash and unused borrowing capacity.”
The Technical Outlook: Huntsman Corporation Looks Like A Buy To Me
Shares of Huntsman Corporation fell after the 3Q report but buyers were waiting to scoop up the deal. Price action fell below the short-term moving average and tested a support target that proved to be quite strong indeed. Evidence of that strength lay in the size of the candle, its move back above the short-term moving average, and the trend following nature of the move. While the indicators have yet to confirm, Thursday’s bounce looks like a textbook bullish trend-following signal confirming the current trend.
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