Why Huntsman Is a Good Bet at 52-Week Lows
Chemicals company Huntsman (HUN) has faced a difficult time this year with its stock losing almost a third of its value so far. In fact, Huntsman now trades very close to its 52-week low, which is not surprising as the company posted mixed results last quarter. Its revenue was down year-over-year, even though the company beat estimates on the top line.
The weak performance can be attributed to macroeconomic headwinds and the planned maintenance outage at its Port Neches, Texas, facility. Interestingly, the negative impact of this outage was partially offset from the performance additives and titanium dioxide businesses.
Its revenue last quarter was down 8.4% from the year-ago period to $2.74 billion, while net income declined 75% year-over-year.
A look at the positives
Huntsman enjoys a strong position in the MDI (methylene diphenyl diisocyanate) business in North America and Europe. In fact, the positive trends in this business in Europe helped offset slower than expected growth in Asia. The main drivers of this business include construction, insulation, and the automotive end markets, which will give a substantial boost to Huntsman's business in the long run as all three segments are expected to continue growing.
More importantly, Huntsman is taking smart steps to optimize its portfolio in order to improve growth prospects. Last year, it sold its European surfactants business and closed its Patrica facility in Italy. This was a decisive move as it will enable Huntsman to focus on developing and growing the remaining differentiated surfactants businesses. According to CEO Peter R Huntsman, "We believe our refocus on differentiated surfactants will improve our annual EBITDA by approximately $20 million in 2015."
In addition, its Advanced Materials division is also contributing strongly to its business, reporting a 20% improvement in its EBITDA margin. Last year, the company made a major restructuring in this business that is yielding promising results. On top of this, Huntsman saw margins improve across most end markets as local currency average selling prices increased and raw material costs decreased.
Similarly, its Pigments and Additives business will also undergo a restructuring, which includes the completion of a new color pigments facility in the U.S. With these efforts, management expects to generate $300 million of EBITDA in this segment going forward.
All in all, Huntsman anticipates that it will achieve its target of $2 billion in EBITDA and the company is moving in the right direction. Huntsman said, "We think we will continue to see stronger specialty and differentiated growth than we had expected." With such moves under its sleeve, the company looks poised to grow in the future.
The company currently has a trailing P/E of 21, but its forward P/E looks impressive at 6, indicating significant growth in its earnings. Also, its price to sales multiple of 0.36 is better than the industry average of 0.94, which reflects that the stock is undervalued at current levels. Hence, I think that Huntsman will be able to improve its performance in the long run and could recover from its 52-week lows.