Due to its crucial role in global manufacturing, the chemical industry serves as a vital foundation for numerous sectors, including automotive, construction, electronics, healthcare, agriculture, etc. This broad range of applications ensures that the chemical industry remains resilient, even in the face of economic uncertainty.
Given this backdrop, it might be wise to consider fundamentally solid stocks Akzo Nobel N.V. (AKZOY), Nitto Denko Corporation (NDEKY), and Innospec Inc. (IOSP) to capitalize on the growing demand for chemicals.
According to Statista, the global chemical industry has experienced a consistent growth trajectory over the years, with its total revenue steadily increasing. However, the industry faced a significant setback due to the pandemic, resulting in a 35% decline in revenue in 2020.
Nevertheless, the chemical industry demonstrated signs of recovery in 2021, reaching an all-time high revenue of $4.7 trillion. Despite this volatility, the industry maintains its crucial role as a major contributor to the global economy. Furthermore, it is expected to continue evolving as innovations emerge, shaping its future growth and development.
According to the American Chemistry Council (ACC), the Global Chemical Production Regional Index (Global CPRI) rose by 0.4% in April after a revised 1.5 % increase in March, while the U.S. Chemical Production Regional Index (U.S. CPRI) rose 0.5% in April.
Moreover, the global specialty chemicals market is expected to reach $882.60 billion by 2028, exhibiting a CAGR of 4.7%. These figures indicate the positive trajectory and potential for expansion within the specialty chemicals market in the upcoming years.
The above statistics indicate that the industry might remain in a bright spot this year. With that being said, let us evaluate the fundamentals of the stocks mentioned above in detail.
Akzo Nobel N.V. (AKZOY)
Headquartered in Amsterdam, the Netherlands, AKZOY is engaged in the production and sale of paints and coatings globally. It offers decorative paints, including paints, lacquers, and varnishes, and a range of mixing machines and color concepts for the building and renovation industry, as well as specialty coatings.
On May 25, AKZOY Packaging Coatings introduced a new internal coating for beverage can ends called BPA-NI (Bisphenol A non-intent), which provides a viable alternative for makers and coil coaters as they accelerate their transition to bisphenol-free solutions. AKZOY places consumer safety and sustainability at the forefront of its approach to the transition from BPA and bisphenol.
The company is committed to responsible material substitutions that minimize disruptions within the value chain. It actively collaborates with customers to facilitate the rapid adoption of alternative solutions to bisphenol.
On April 19, AKZOY announced its plans to enhance its presence in China through the acquisition of Sherwin-Williams's Chinese Decorative Paints business.
AKZOY’s CEO Greg Poux-Guillaume believes that this acquisition would facilitate the realization of their growth objectives in lower-tier regions of China while being strategically aligned with their current operations.
AKZOY’s revenue increased 5.2% year-over-year to €2.66 billion ($2.86 billion) in the first quarter (ended March 31, 2023), while its gross profit rose marginally from the year-ago value to €982 million ($1.06 billion).
The company’s net income attributable to shareholders and adjusted EPS amounted to €94 million ($100.98 million) and €0.73, respectively, in the same period. Also, its adjusted EBITDA came in at €305 million ($327.69 million) for the same period.
The consensus EPS estimate of $1.42 for the fiscal year 2023 (ending December 31) represents a 62.3% improvement year-over-year. The consensus revenue estimate of $11.67 billion for the current year represents a marginal increase from the same period last year. Moreover, it surpassed the revenue estimates in three of its trailing four quarters.
AKZOY’s shares have gained 22.4% over the past nine months to close the last trading session at $26.03.
AKZOY’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Stability. In the 84-stock Chemicals industry, it is ranked #6. To see additional ratings of AKZOY for Value, Momentum, Sentiment, and Quality, click here.
Nitto Denko Corporation (NDEKY)
Headquartered in Osaka, Japan, NDEKY is mainly engaged in the industrial tape, optronics, and life science businesses. The company also offers functional thermal transfer systems, medical products, electrical and electronic equipment tapes, dust removal products, fluoroplastic sheets, tapes, porous films, and materials.
On February 17, NDEKY was recognized as one of the "Clarivate Top 100 Global Innovators 2023." This prestigious list compiled by Clarivate Analytics highlights the 100 most inventive companies and research institutions worldwide.
Since its inception in 2012, this award is now celebrating its 12th year, and NDEKY has been honored for the 10th time, which reflects its commitment toward research and innovation.
For the fiscal year 2022, which ended on March 31, 2023, NDEKY’s revenue increased 8.9% year-over-year to ¥929.04 billion ($6.66 billion). Its gross profit rose 11.6% from the year-ago value to ¥337.44 billion ($2.42 billion).
The company’s net income and EPS amounted to ¥109.26 billion ($783.62 million) and ¥738.48, representing increases of 12.4% and 12.6% from the prior-year period, respectively. Also, its operating income increased 11.3% from the year-ago value to ¥147.17 billion ($1.06 billion).
Analysts expect NDEKY’s revenue in the fiscal year 2023 (ending March 2024) to increase 62.9% year-over-year to $6.63 billion. The stock has gained 30.3% year-to-date to close the last trading session at $37.42.
NDEKY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Stability. Within the same industry, it is ranked #8. Click here to see NDEKY’s ratings for Growth, Momentum, and Sentiment.
Innospec Inc. (IOSP)
IOSP is an international specialty chemicals company that develops, manufactures, blends, markets, and supplies specialty chemicals and products that are used as additives in various fuels. The company operates through three segments: Performance Chemicals; Fuel Specialties; and Oilfield Services.
On February 23, IOSP received recognition from Henkel for its exceptional innovation. IOSP was honored with the prestigious "Best Innovation Contributor Hair Care - 2022" award for developing a novel product that strengthens hair fibers and prevents protein loss in the hair.
Henkel highlighted this groundbreaking technology featured in its Hair Repair Expert Brand - Gliss Kur. This marks the third time in the last six years that IOSP has been bestowed with the Best Innovation Contributor Award.
IOSP’s net sales increased 7.9% year-over-year to $509.60 million in the first quarter (ended March 31, 2023), while its gross profit rose 6.1% from the year-ago value to $147.80 million. The company’s net income and EPS amounted to $33.20 million and $1.33, respectively, in the same period. Also, its operating income came in at $41 million for the same period.
During the same period, its total current liabilities amounted to $381.60 million, declining 5.9% compared to $405.80 million for the period that ended December 31, 2022.
Street expects IOSP’s revenue for the second quarter (ending June 30, 2023) to increase 6.4% year-over-year to $497.63 million, while its EPS is expected to be $1.32 in the same period. EPS and revenue are expected to reach $6.95 and $2.12 billion in the fiscal year 2024, reflecting 16.6% and 4.4% year-over-year growths, respectively.
Additionally, it surpassed the revenue estimates in each of its trailing four quarters and EPS estimates in three of its trailing four quarters, which is impressive.
Over the past nine months, the stock has gained 14.8% to close the last trading session at $101.52.
It’s no surprise that IOSP has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Stability and Sentiment. Out of 84 stocks in the same industry, it is ranked #11.
In addition to the POWR Ratings we’ve stated above, we also have IOSP’s ratings for Growth, Value, Momentum, and Quality. Get all IOSP ratings here.
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AKZOY shares were trading at $25.49 per share on Friday afternoon, down $0.54 (-2.07%). Year-to-date, AKZOY has gained 16.16%, versus a 12.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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