Chemtura Up to Strong Buy

On Jan 25, Zacks Investment Research upgraded specialty chemicals company Chemtura Corporation (CHMT) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Chemtura remains focused on expanding in faster growing economies and markets to capture new product opportunities while establishing appropriate value-based pricing levels for its products. The company is emphasizing on managing costs and improving operating efficiency.

Chemtura, which is focused on becoming a superior-performing specialty chemicals company, aims that its portfolio will deliver 20% adjusted EBITDA margins.

In Dec 2013, Chemtura successfully completed its sale of the Consumer Products business including dedicated manufacturing plants in the U.S. and South Africa to KIK Custom Products Inc. for an adjusted purchase price of $300 million. The $15 million reduction reflects the resolution of certain pre-closing matters by the parties. The deal is expected to expand the company’s margins to meet financial and strategic performance goals.

In Oct 2013, Chemtura announced that it will sell its agrochemicals business, Chemtura AgroSolutions, if an offer with an attractive valuation was presented. The sale of this business will be an opportunity for Chemtura to become a pure-play industrial specialty chemicals company. The company will become a more focused global specialty chemicals company with a simple portfolio. It will allow for greater management focus on opportunities on its Industrial Performance Products and Industrial Engineered Products segment, each having manufacturing, sales and distribution characteristics that provide end-market synergies.

In the third quarter of 2013, Chemtura began to evolve its debt capital structure to align with its strategic initiatives and reduce its cost of capital. The company repaid additional $50 million of term loan with proceeds from the sale of its Antioxidant business. The refinancing actions will cut both annual interest cost and annual cash interest by roughly $8 million, while meaningfully reducing covenant restrictions related to specific uses of cash.

Other Stocks to Consider

Other companies in the specialty chemicals space that are worth considering include Westlake Chemical Corp. (WLK), Sensient Technologies Corporation (SXT) and Kraton Performance Polymers Inc. (KRA). While Westlake holds a Zacks Rank #1 (Strong Buy), both Sensient and Kraton retain a Zacks Rank #2 (Buy).

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