While tracking the chemicals sector, I came across a company that unfortunately couldn't churn out a robust bottom line in spite of high product prices, or even from passing on costs to consumers.
Huntsman
Operational performance
Higher input costs but soaring product prices -- it has been an interesting time for Huntsman. The company operates five segments, and most of these have seen good top-line growth, except for its Textile Effects (TE) division, which has been plagued by weak demand and manufacturing constraints.
Nevertheless, overall, Huntsman revenues have grown at an impressive compounded average rate of 21.6%. What is impressive is the jump in this rate from a mere 1.2% in the past half-decade. High selling prices as well as volumes have contributed to the growth.
The chemical player has also done well on the operating-earnings front. Huntsman has come a long way to boast an amazing one-year compounded growth rate of 97%.
Growth plans
Huntsman recently announced an important restructuring plan that could include closing down its TE facilities in Switzerland. This move makes sense, considering that this division has been consistently seeing weak sales. Moreover, a stronger Swiss franc caused a $19 million decline (out of which $10 million was related to the TE division) in the company's second-quarter operating income.
Huntsman also has a keen eye on expansions, especially in emerging markets. It acquired an India-based chemical company this year and has plans of major expansions in the country. It will also be setting up a technology center in Shanghai and expanding key product facility lines in Alabama.
Such aggressive plans should add a lot of value to Huntsman's business.
Stability
Huntsman's total-debt-to-equity ratio is too high for my comfort at 187.4%. Its long-term debt stands at $3.9 billion. Though the interest coverage ratio is at 2.6, the cash balance appears a little tight at $683 million. Moreover, the company has also been repurchasing shares and has a high dividend payout ratio of 36.8%. These add to the pressure on cash balances.
Value insights
Let's take a look at how Huntsman's valuation stacks up next to its peers.
|
Company |
Trailing P/E |
Forward P/E |
P/BV |
|---|---|---|---|
| Huntsman | 9.7 | 6.0 | 1.19 |
|
DuPont |
16.5 | 9.9 | 3.34 |
|
Dow Chemical |
11.3 | 8.4 | 1.50 |
|
Kronos Worldwide |
9.8 | 5.9 | 2.54 |
|
Ashland |
16.5 | 9.7 | 0.81 |
Source: Capital IQ, a division of Standard & Poor's.
Huntsman's lowest trailing P/E shows how cheap the stock is compared with its peers. What's even more interesting is the lower forward P/E, indicating how earnings are expected to grow in the future. If you look carefully, it seems the entire industry is expected to do well, with the forward P/E for every peer coming in lower than the trailing ones. This definitely means there could be good upside potential for the stock in the future, as expected earnings growth hasn't really been factored in its price yet.
On a price-to-book value basis, too, the company looks cheaper than most of its peers. Huntsman's return on equity is also a decent 15.1%, and even more impressive is its strong 3.8% dividend yield.
The Foolish bottom line
With its strong operational growth, sensible restructuring moves, and relatively cheap valuations, Huntsman does look like a value pick. What's more, the stock just hit its 52-week low of $9.88, after getting hammered by 31% on the day its second-quarter results were announced. Not a bad time to get in, is it?
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