Monday, September 12, 2011 5:59:23 PM
Credit Suisse likes Air Products & Chemicals, Cytec and FMC.
http://online.barrons.com/article/SB50001424052702304133804576561051067921600.html?mod=BOL_hpp_oe
The recent moves in chemicals stocks tied to concerns about the macro have resulted in a number of opportunities for investors depending on their risk appetite. In general, we think it's too late to simply "sell beta and cyclicals" given the huge stock corrections we have seen in the space.
That said, while some names may have as much as a double ahead when the economic data turns up, it doesn't mean you can't be fired for being invested in them if we see a deep recession in the near term. As a result, we have attempted to frame the downside risk for the stocks in both a deep recession and a modest recession as well as the potential upside reward if the group enjoys modest growth in 2012.
We aren't sure what is going on in the macro. The macro environment appears to be in complete disarray owing to a host of financial/political drivers. This has led to various potential outcomes in 2012 ranging from a second credit crunch (and deep recession) to a moderate recession to simply more moderate growth compared to the past two-plus years (while the consensus and our published estimates may point to the "growth scenario," the buy-side expectations are clearly lower).
Following conversations with each of our companies as well as Credit Suisse's economists, we don't believe a deep recession/credit crunch is coming but to help frame the downside, we have included that as a possibility.
In our report we have worked to determine the potential earnings per share in 2012 in the aforementioned scenarios. In a 2008/2009 environment (unlikely but not impossible) the group should see earnings down about 29.5% in 2012 versus 2011 -- not as bad as what was reported in 2009 owing to cost cuts and balance-sheet changes but still solidly down. In a modest recession we believe the group would see earnings down roughly 8%. Finally, in a growth environment we could see earnings growth in 2012 of roughly 18%.
Largely, we believe the multiples seen in 2008/2009 are the most conservative/reasonable in determining a "worst case" scenario (with some adjustments for those debt-laden names thrown into the abyss that have since restructured their balance sheets). Meanwhile, historical multiple averages should be reasonable in determining upside in a modest recession or modest growth scenario.
With the above in mind looking at the overall risk/reward profiles, 10 of our 20 names under coverage have at least two times the potential upside (in the growth scenario) as they do downside (in the deep-recession scenario). In that group, only two have limited downside in a deep recession (less than 10%) and may have upper-teens-plus upside in the "modest recession" scenario -- Air Products & Chemicals (ticker: APD), Cytec Industries (CYT), although FMC (FMC) is not far off from these hurdles.
Names for investors with a greater ability to stomach risk would include: Dow Chemical (DOW), Ferro (FOE), Ashland (ASH) and Rockwood Holdings (ROC) -- offering 50%-plus upside in a growth environment and upside in a modest recession, but having solid downside in a deep recession.
In addition, for RPM International (RPM) we think the year-to-date stock weakness, the relative resilience of their earnings, and a high-dividend yield offer a decent risk/reward profile, so we are upgrading our rating to Neutral [from Underperform].
For Nalco Holding (NLC), with no upside in a growth environment (given the Ecolab (ECL) bid) and solid downside in the off chance the Ecolab merger falls through, we are downgrading our rating to Underperform [from Neutral].
Recent APD News
- Air Products and Tatung Forever Energy Sign Power Purchase Agreement for Solar Electricity in Taiwan • PR Newswire (US) • 08/28/2024 03:00:00 PM
- Air Products' Vice President, Investor Relations, to Speak at Jefferies Industrials Conference on September 4 • PR Newswire (US) • 08/28/2024 01:00:00 PM
- Air Products Publishes 2024 Sustainability Report - "Generating a Cleaner Future" • PR Newswire (US) • 08/08/2024 05:00:00 PM
- Form 10-Q - Quarterly report [Sections 13 or 15(d)] • Edgar (US Regulatory) • 08/01/2024 06:12:57 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 08/01/2024 11:58:09 AM
- Air Products Reports Fiscal 2024 Third Quarter GAAP EPS of $3.13 and Adjusted EPS of $3.20 • PR Newswire (US) • 08/01/2024 10:00:00 AM
- Air Products Trials First Mercedes-Benz Genh2 Trucks as Part of Pioneering Project with Daimler Truck and Announces Plans for a European Hydrogen Refuelling Network • PR Newswire (US) • 07/25/2024 01:00:00 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 07/22/2024 11:00:32 AM
- Air Products' Chairman, President and CEO Seifi Ghasemi Announces Formation of Senior Management Board • PR Newswire (US) • 07/22/2024 11:00:00 AM
- Air Products Declares Quarterly Dividend • PR Newswire (US) • 07/18/2024 02:00:00 PM
- Air Products to Build, Own and Operate Two New Air Separation Units at its Facilities in Georgia and North Carolina • PR Newswire (US) • 07/17/2024 02:00:00 PM
- Air Products Appoints Eric Guter Vice President, Investor Relations • PR Newswire (US) • 07/16/2024 08:30:00 PM
- Air Products Awarded an "A" on MSCI's Environmental, Social and Governance (ESG) Ratings • PR Newswire (US) • 07/15/2024 03:00:00 PM
- Costco Hikes Membership Fees; ON Semiconductor Stock Drops 3%; WD-40 Soars 13% on Strong Q3 Earnings • IH Market News • 07/11/2024 10:17:26 AM
- Form 8-K - Current report • Edgar (US Regulatory) • 07/10/2024 08:46:04 PM
- HONEYWELL TO ACQUIRE AIR PRODUCTS' LIQUEFIED NATURAL GAS PROCESS TECHNOLOGY AND EQUIPMENT BUSINESS TO EXPAND ENERGY TRANSITION SOLUTIONS AND SERVICES • PR Newswire (US) • 07/10/2024 11:00:00 AM
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- Air Products to Broadcast Fiscal Third Quarter Earnings Teleconference on August 1, 2024 • PR Newswire (US) • 07/01/2024 08:00:00 PM
- Air Products Membrane Solutions Breaks Ground on $70 Million Expansion of its Missouri Manufacturing and Logistics Center • PR Newswire (US) • 06/25/2024 08:55:00 PM
- Form 11-K - Annual report of employee stock purchase, savings and similar plans • Edgar (US Regulatory) • 06/20/2024 02:51:33 PM
- Air Products to Showcase Industrial Gas Solutions at the PowderMet2024 International Conference on Powder Metallurgy and Particulate Materials • PR Newswire (US) • 06/13/2024 02:00:00 PM
- Decarbonization of European Refineries: A First Agreement Signed Between TotalEnergies and Air Products for the Delivery of Green Hydrogen • Business Wire • 06/07/2024 02:08:00 PM
- Décarbonation des raffineries européennes : Un premier accord signé entre TotalEnergies et Air Products pour la livraison d'hydrogène vert • Business Wire • 06/07/2024 02:08:00 PM
- Decarbonization of European Refineries: A first agreement signed between TotalEnergies and Air Products for the delivery of Green Hydrogen • PR Newswire (US) • 06/07/2024 01:00:00 PM
- Form SD - Specialized disclosure report • Edgar (US Regulatory) • 05/31/2024 01:00:58 PM
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