On Jan 3, 2015, Zacks Investment Research downgraded chemical company Methanex Corporation (MEOH) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Share price of Methanex has been witnessing a volatile trend over the past one month since the company suspended its Trinidad operations due to power supply constraints. Methanex’s production has been crippled by a shortage of natural gas supplies in various regions. Other than Trinidad, restricted supply of natural gas continues to affect its operations in Chile and Egypt.
Methanex had to temporarily halt operations at its Egypt plant in Jun 2014 due to gas supply constraints related to higher electricity demand. Moreover, Methanex saw higher gas curtailments in Trinidad in the third quarter of 2014 over the second.
Methanex also posted weak third-quarter 2014 results. The company saw a 40% fall in profits from the year-ago quarter to $52 million, hurt by lower methanol pricing. The Canada-based methanol producer’s earnings of 54 cents per share (treating stock-based compensation as a normal expense) for the quarter fell well short of the Zacks Consensus Estimate of 65 cents and came in below 90 cents per share, recorded a year ago.
Sales for the reported quarter also saw a dip of roughly 4% year over year to $730 million. Average realized price was $389 per ton in the third quarter, down 11% from $438 per ton a year ago.
Methanex has been witnessing downward estimate revisions since the release of its third-quarter results. The Zacks Consensus Estimate for earnings for 2014 has decreased 2.5% to $4.24 per share. Moreover, the Zacks Consensus Estimate for 2015 has declined 22.8% to $4.72 per share.
The majority of the company’s operations and investments are located outside of North America. Methanex is subject to risks inherent in foreign operations, including loss of revenues, import or export restrictions, anti-dumping measures, several political risks, increases in duties, taxes and governmental royalties, re-negotiation of contracts with governmental entities as well as other government measures which may adversely affect its operations.
Methanex is also exposed to volatile methanol prices. However, it stated that methanol prices remained stable or higher across key markets, entering the fourth quarter.
Other Stocks to Consider
Other stocks worth considering in the diversified chemical space include Innospec Inc. (IOSP), Kronos Worldwide, Inc. (KRO) and Johnson Matthey plc (JMPLY). While Innospec and Kronos Worldwide sport a Zacks Rank #1 (Strong Buy), Johnson Matthey carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment