BofA Analyst's Chemical Blend: Rating Change Saga, Reassesses Agricultural Market Dynamics

BofA Securities analyst Steve Byrne said he was bullish on commodity chemical stocks but remained selective given a tough recovery and leans “this way with lithium, as well.”

The analyst expected residential and non-resi investments to remain soft, with more resilience in aerospace and auto and a continued focus on decarbonization and water management.

Consequently, the analyst issued an upgrade for Dow Inc (NYSE:DOW) to Buy from Hold with an increased price target of $60 from $57, expecting the company to witness EBITDA growth of ~50% by 2025 (vs. 2023). 

On the other hand, the analyst gave Celanese Corporation (NYSE:CE) a downgrade to Underperform from Neutral with an increased price target of $135 from $124. Given the 56% return in 2023, he sees the shares more than fully discount the expected earnings recovery.

Apart from this, the analyst stated the agricultural (ag) markets are entering normalized earnings at a lower part of the cycle, with farmer margins expected to be flat Y/Y in 2024 but still above pre-2021 levels.

As the outlook for crop chemicals remains sluggish, the analyst downgraded FMC Corp (NYSE:FMC) to Underperform from Neutral with a lowered price target of $57 from $60 on lack of conviction about a near-term earnings recovery.

Among the other petrochemical/diversified companies, the analyst lowered the rating on DuPont de Nemours Inc (NYSE:DD) to Underperform from Buy with a higher price target of $80 from $78, reflecting modest earnings recovery in 2024 and under-appreciated PFAS liabilities. 

Meanwhile, the analyst issued an upgrade for Ecolab Inc (NYSE:ECL) to Neutral from Underperform and raised the price target to $216 from $185 on expected continued benefit from aggressive pricing, business wins, cost deflation and focus on productivity.

Overall, for U.S/ chemicals stocks, the analyst moderately reduced the earnings estimates, with EPS lowered by an average of 3% for the fourth quarter of FY23 and 6% for FY24.

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