Stock to Avoid: Arkema S.A. - Analyst Blog

Zacks Investment Research downgraded Arkema S.A. (ARKAY) to a Zacks Rank #5 (Strong Sell) on Jun 5, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader market.

Why the Downgrade?

The American Depository Receipt (ADR) price of Arkema S.A. has slipped 2.7% since the company reported lackluster financial results for first-quarter 2014. In local currency, the company's adjusted net income decreased 2.7% year over year with earnings per share down by 9.7%.

The top-line result was weak as revenues generated declined 2.6% year over year. Volume gains were 3.3%, offset by 2.6% and 2.1% of negative impact from price movement and currency translation respectively, along with 1.2% loss from miscellaneous sources.

Arkema's earnings before interest, tax, depreciation and amortization (EBITDA) declined 9.0% year over year while EBITDA margin fell 100 basis points.

The disappointing results triggered a downward revision in earnings estimates. Over the last 30 days, the Zacks Consensus Estimate of Arkema S.A. has declined 4.7% to $7.99 per ADR for 2014 and 2.1% to $9.60 per ADR for 2015. Unsubstantial results and lowered earnings estimates have made investors skeptical about Arkema's financial performance in the quarters ahead.

Other Stocks to Consider

Arkema S.A. has a $6.4 billion market capitalization. Some better-ranked stocks in the chemical industry include Compass Minerals International Inc. CMP, Koninklijke DSM N.V. (RDSMY) and PetroLogistics LP PDH. While Compass Minerals sports a Zacks Rank #1 (Strong Buy), both Koninklijke DSM and PetroLogistics carry a Zacks Rank #2 (Buy).