Goldman Sachs cuts Huntsman stock target, maintains sell on Q2 results

On Monday, Goldman Sachs adjusted its outlook on shares of Huntsman Corporation (NYSE:), a global manufacturer of differentiated and specialty chemicals. The firm’s analyst has lowered the price target on the company’s shares to $23.00 from the previous $27.00, while continuing to recommend a sell position.

The reduction follows Huntsman’s second-quarter 2024 adjusted EBITDA report, which showed a figure of $131 million, slightly above the Bloomberg consensus estimate of $129 million and within the company’s own guidance of $115 million to $140 million.

Despite the overall EBITDA being in line with expectations, segment performance varied, with the Performance Products division experiencing a $9 million decline, Polyurethane down by $8 million, and only the Advanced Materials segment showing a marginal increase of $1 million.

Increased volumes were noted across all segments for Huntsman in Q2, but this was offset by a double-digit decline in dollar prices in each segment, leading to reduced margins. Looking ahead to the third quarter, Huntsman has provided guidance ranging from $115 million to $145 million, in comparison to the $136 million reported in the same period the previous year.

Goldman Sachs has adjusted its Q3 EBITDA estimate for Huntsman to $136 million, aligning with the lower end of the company’s projected range.

The firm also revised its 2025 earnings estimate downwards by 7%, citing prolonged pressure from Chinese producers on the market for MDI (methylene diphenyl diisocyanate), a key component in polyurethane production. This pressure from Chinese competitors is expected to have a more enduring impact than initially anticipated by Goldman Sachs.

In other recent news, Huntsman Corporation has reported an increase in its Q2 2024 margins, following a year-over-year and quarter-over-quarter volume increase of 9% and 8%, respectively. These improvements have been attributed to the company’s successful cost initiatives.

Despite cautious sentiments about the latter half of the year, the firm anticipates potential rate decreases that could drive further margin improvements. Huntsman’s CEO, Peter Huntsman, noted a strong demand in advanced materials and a modest improvement in performance products.

In addition to these developments, the corporation is actively considering mergers and acquisitions for both vertical and horizontal integration. The company also expects a gradual improvement in business over the upcoming quarters, while maintaining a focus on cash discipline, limiting discretionary spending, and preserving a robust balance sheet.

However, it is worth noting that the advanced materials business is facing a negative price mix due to changes in product mix, and the Rotterdam facility outage along with challenges in the Chinese joint venture may impact the polyurethanes business. Despite these challenges, the company remains optimistic about future growth driven by government initiatives and a rebound in the US housing market.

InvestingPro Insights

As the outlook on Huntsman Corporation (NYSE:HUN) shifts, the latest data from InvestingPro offers a nuanced view of the company’s financial health and market position. With a market capitalization of $3.61 billion, Huntsman is navigating a challenging landscape, underscored by a negative P/E ratio of -41.99, reflecting market skepticism about its near-term earnings potential. This sentiment is further echoed in the adjusted P/E ratio for the last twelve months as of Q2 2024, which stands at -30.82.

Despite these headwinds, Huntsman has demonstrated a commitment to shareholder returns, maintaining dividend payments for 18 consecutive years and even raising its dividend for the last three years. The current dividend yield stands at a robust 4.79%, a beacon for income-focused investors, especially when considering the company’s dividend growth of 5.26% in the same period.

InvestingPro Tips highlight that analysts have tempered their expectations, with 12 analysts revising their earnings estimates downwards for the upcoming period. However, there is a silver lining as the company is expected to return to profitability this year, a sentiment that is reflected in the fair value estimates by analysts, which suggest a target of $24.50, compared to the InvestingPro fair value of $20.01.

For investors considering Huntsman Corporation, additional insights are available, with a total of 9 InvestingPro Tips listed, offering a more in-depth analysis and guidance on the company’s future prospects.

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