5 Chemical Stocks Get Mixed Reaction: Which Ones Got An Upgrade Or Downgrade?

The risk-reward balance may be unfavorable for chemical stocks heading into second-quarter earnings season, and one analyst adjusted his chemical stock ratings accordingly on Friday.

The Analyst: Bank of America analyst Steve Byrne issued the following chemical stock upgrades and downgrades:

• Dow Inc (NYSE: DOW) downgraded from Neutral to Underperform, price target cut from $71 to $68.
• LyondellBasell Industries NV (NYSE: LYB) downgraded from Buy to Neutral, price target cut from $117 to $114.
• Olin Corporation (NYSE: OLN) upgraded from Neutral to Buy, price target raised from $49 to $58.
• Westlake Chemical Corporation (NYSE: WLK) upgraded from Underperform to Neutral, price target maintained at $98.
• Westlake Chemical Partners LP (NYSE: WLKP) downgraded from Buy to Underperform, price target maintained at $27.

Related Link: 3 Oil Services Stocks With The Most Exposure To Hydrogen Production

The Thesis: In the note, Byrne said market expectations are high in the chemical space heading into second-quarter earnings season thanks to recent inflation in commodity prices.

However, he said revenue growth and commodity margins may be peaking, suggesting guidance could potentially disappoint investors. In addition, early second-quarter preannouncements in the chemical space that exceeded consensus estimates have been met with selling pressure in the market, suggesting investors may be ready to ring the register.

Byrne said commodity inflation could be approaching its cyclical peak, particularly the U.S. polyethylene (PE) market. But he noted there are still plenty of potential value plays within the chemical space given the attractive macroeconomic backdrop.

“That said, we do see opportunities into the print, and suggest investors keep exposure to stories with structural growth opportunities that can execute through the noise, notably DD, ESI, SHW, and LIN, or areas where reflation opportunities coincide with attractive valuations, such as CF, HUN, MOS, and OLN,” Byrne said Friday.

Benzinga’s Take: Commodity price inflation can be a rising tide that lifts all boats in the chemical space. But when price inflation peaks, stock selection among chemical stocks will become increasingly important if investors want to maintain outsized returns.