BofA makes six rating changes in Chemicals as bottom nears

BofA analysts Steve Byrne and Matthew DeYoe see several signs that petrochemical fundamentals are “near the bottom,” but note that while the firm’s petrochemical sentiment index bottomed in July it has not yet flipped to a bullish outlook. In that context, the “challenge will be striking a balance between buying trough earnings and weathering poor” Q3 results, the analysts tell investors. With the trough in, the firm sees limited downside in the petchems and is upgrading Dow (DOW) and LyondellBasell (LYB), both to Neutral from Underperform, and double upgrading Huntsman (HUN) to Buy from Underperform. As the lithium market balances shift to adequately supplied in 2023 and oversupplied in 2024/2025, the firm expects to see a period of earnings and margin pressure across the value chain and is downgrading Albemarle (ALB) to Underperform from Neutral. Given more potential upside seen in the upstream names, the firm has trimmed valuation multiples for Sherwin (SHW) and moved to Underperform on the stock due to potentially weak demand in housing starts, turnover, and remodeling. The firm is also downgrading Westlake (WLK) to Underperform from Neutral to reflect its view that there are significant risks to consensus estimates.