The chemical industry—companies that create chemicals used in industry, commerce, and a range of other applications—has been thriving for years, until the COVID-19 pandemic. However, a recent report by McKinsey & Co. shows that the post-pandemic period has seen a sharp reversal of this trend, with chemical companies as a group achieving growth of less than 2% per annum since the end of 2022, while global indices have increased by 24% per annum over the same period.
Why was there a sudden and significant shift? Persistent inflation was the main headwind for most of the period under review, along with other factors including high energy prices, regulatory changes and imbalances in production capacity and demand. As inflation rose and interest rates rose, many of the industries that most commonly used chemical products (consumer products, automobiles, etc.) saw growth slow or even reverse, suppressing demand for these products.
Despite the challenges of recent years, 2025 could bring renewed growth for some chemical companies, especially if the regulatory environment eases. Some of the firms that could benefit from these external changes in the new year include Quaker Houghton. New York Stock Exchange: KWRBalham Corporation. NASDAQ: BCPCand H. B. Fuller Co. NYSE: FULL.
Quaker Houghton: External factors hamper recent gains
Quaker Chemical Today
Quaker Chemical
(As of 5:16 p.m. ET)
- 52 week range
- $137.00
▼
$221.94
- Dividend yield
- 1.41%
- P/E ratio
- 20.16
- Target price
- $187.33
As of December 19, 2024, shares of Quaker, a manufacturer of process fluids for a variety of industrial applications, were trading at a 52-week low with an annualized total return of nearly -34%. The company’s third-quarter earnings results appear lackluster, with net sales down 6% year-over-year to $462 million for the quarter and a slight decline in net income for the same period; they also provide reasons for optimism.
Quaker said several external factors, such as soft market conditions, primarily contributed to the decline in sales in the most recent quarter. However, new business has helped offset the damage caused by these elements. Prices were also high, which helped minimize the negative impact.
All this suggests that many of the company’s fundamental business factors remain attractive to investors. The pre-pandemic merger of Quaker Chemical and Houghton International brought together two leaders in industrial fluids with the goal of creating a powerful company that will dominate both domestically and internationally. However, setbacks due to the pandemic have hindered this process – now the company may finally be able to overcome these barriers in 2025.
Balchem: Food chemistry business drives growth
Balham today
(As of 5:45 p.m. ET)
- 52 week range
- $135.84
▼
$186.03
- Dividend yield
- 0.53%
- P/E ratio
- 44.44
- Target price
- US$190.00
A producer of ingredients used by food, animal products and pharmaceutical companies, Balchem has done better than Quaker in recent months. As of December 19, 2024, this firm had an annualized return of 16.3%. Net sales for the most recent quarter increased more than 4% year-over-year, driven by the company’s Human Nutrition, Health and Specialty Products segments.
The first of these two segments may be particularly encouraging for investors heading into 2025. Balchem’s nutrition and human health division produces formulations for use in multivitamins and related products, which could get a boost if Robert F. Kennedy Jr. becomes Secretary of Health and Human Services. in the new administration.
Balchem’s free cash flow of more than $42 million in the most recent quarter helped the firm pay off $39.6 million in revolving debt, bringing its net debt to just over $153 million. The company also recently increased its dividend by 10% – Balchem has a manageable payout ratio of 23.4%, which should allow it to continue to comfortably pay its dividend for the foreseeable future.
H.B. Fuller: Growing debt, but solid foundation
H.B. Fuller today
(As of 5:26 p.m. ET)
- 52 week range
- $67.38
▼
$87.67
- Dividend yield
- 1.31%
- P/E ratio
- 20.98
- Target price
- $92.75
HB Fuller produces a variety of adhesives and similar products for use in the construction, health and hygiene and mechanical engineering industries. The firm has recently made efforts to reorganize its business and grow through acquisitions. This process diversified its operations, but significantly increased its net debt to approximately $2 billion. With 2023 sales of approximately $3.5 billion, HB Fuller has a strong foundation, but pressure on profitability remains an ongoing challenge.
With shares down more than 15% in the year to December 19, HB Fuller looks more attractive as a value candidate. The company has a P/S ratio of about 1.1 as of the same date. This may be why analysts are rating FUL shares a Moderate Buy and have given the company a consensus price target of $92.75, which is about 34% above current price levels.
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