Huntsman Corporation (NYSE: HUN) specializes in making organic chemical products, including propylene oxide, high-performance thermoset resins, and textile chemicals. The products offered are used in aerospace, textile, electronics, packaging, power generation, and other industries.
Headquartered in The Woodlands, Texas, the company operates through its wholly-owned subsidiary, Huntsman International LLC. Over the past year, shares of this $7.7-billion company increased 25.5% to close at $35.98 on Friday.
Huntsman’s average price target is at $47.31, suggesting an upside potential of 31.49% from the last closing price. The upside strength as well as favorable factors discussed below makes Huntsman a worthy investment option for investors seeking exposure to the chemical industry.
Impressive Performance and Projections
Huntsman delivered better-than-expected results in all the quarters of 2021. In the last reported quarter, the company’s earnings exceeded the consensus estimate by 4.4% and increased 86.3% from the year-ago quarter. Revenues, too, surpassed the consensus estimate by 6% and grew 38.3% year-over-year.
For the first quarter of 2022, the company anticipates adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) to be $350-$380 million. The guidance is favorable compared with the adjusted EBITDA of $349 million recorded in the fourth quarter of 2021.
In February, Huntsman’s Chairman, President, and CEO, Peter R. Huntsman, said, “While we view 2021 as a highly successful year for Huntsman, we see this is as just the beginning and we expect to build upon this momentum.”
Strengthening Polyurethanes Segment
Huntsman businesses in this segment have evolved over the years with revenues increasing from $2.6 billion in 2005 to $5 billion in 2021 (59% of the year’s total revenues).
Solid product offerings and healthy demand have made Huntsman the leading spray polyurethane manufacturer globally. Also, the company is the leading supplier of polyurethane foam in North America.
Back integration into raw materials, secured supply, and technological expertise has well-positioned Huntsman to leverage benefits from the $8.2 billion addressable market in North America in the years ahead. Also, growing footprints in the $9.5 billion addressable market in Europe and the $13.1 billion addressable market of Asia Pacific (APAC) will be beneficial for the company.
Peter R. Huntsman, said, “This year in the second quarter we will complete our Geismar Louisiana, MDI splitter project which will expand our differentiated Polyurethanes business in the Americas, and we will continue to progress our previously announced investments targeting electric vehicle batteries, semi-conductors, and polyurethane catalysts.”
Strategic Review of Textile Effects
Actions have been initiated this quarter to find a strategic alternative, including a possible sale, for the Textile Effects segment. The decision was taken and announced in December 2021.
The idea to divest this Singapore-based business is in the best interest of shareholders and in sync with the company’s strategic targets.
In 2021, revenues of the Textile Effects segment increased 31% year-over-year to $783 million. Adjusted EBITDA at $97 million reflected year-over-year growth of 131%.
Solid Cash Position & Capital Allocation Policy
Huntsman had cash and cash equivalents of $1,041 million at the end of 2021. Its cash flow from operating activities was $953 million and free cash flow was $611 million in the year.
With such cash holdings, Huntsman is well-positioned to reward its shareholders handsomely through share buybacks and dividend payments as well as invest in growth opportunities like acquisitions and others.
In 2021, Huntsman spent $245 million on acquisitions of businesses (net of cash acquired). Dividend payment to shareholders amounted to $159 million and share repurchases were for $200 million.
In October 2021, Huntsman’s board of directors approved a $1 billion worth of share repurchase program, of which $899 million authorization was unused at the end of 2021. Also, in February, the company hiked its quarterly dividend rate by 13%. The current dividend rate is at $0.2125 per share.
Leverage Reduction
Exiting 2021, Huntsman had long-term debts of $1,538 million, a slight increase from $1,528 million at the end of 2020. Despite high debts, the company’s debt-reduction efforts are appreciable.
In 2021, the company repaid long-term debts of $990 million while its net leverage stood at 0.4x versus 0.8x at the end of 2020. Also, interest expenses (net) declined 22.1% year-over-year in 2021.
Stock Rating
On March 28, Barclays analyst Michael Leithead reiterated a Hold rating on Huntsman with a price target of $40 (11.17% upside potential).
Meanwhile, the Street is optimistic about Huntsman’s growth prospects and has a Strong Buy consensus rating based on 11 Buys and three Holds.
News Sentiments
News Sentiment for Huntsman is currently Neutral based on seven articles in the past seven days. 100% of the articles on HUN have Bullish sentiment, compared to the sector average of 60%.
Conclusion
With strong fundamentals and healthy growth opportunities, Huntsman seems to be a worthy investment option for near-term and long-term investors. The share price decline of 11% over the past month could be used to gain exposure to the stock cheaply.
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