Methanex (MEOH) Downgraded to Strong Sell on Weak Q3 - Analyst Blog

On Nov 19, 2014, Zacks Investment Research downgraded chemical company Methanex Corporation (MEOH) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Methanex reported third-quarter 2014 results on Oct 29. The company saw a 40% fall in profits from the year-ago quarter to $52 million, hurt by lower methanol pricing. The Canada-based methanol producer's earnings of 54 cents per share (treating stock-based compensation as a normal expense) for the quarter fell well short of the Zacks Consensus Estimate of 65 cents and were below 90 cents per share, recorded a year ago.

Sales for the reported quarter also saw a dip of roughly 4% year over year to $730 million. Average realized price was $389 per ton in the third quarter, down 11% from $438 per ton a year ago.

The Zacks Consensus Estimate for Methanex for 2014 decreased 0.2% to $4.24 per share, following two downward estimate revisions over the last 30 days. The Zacks Consensus Estimate for 2015 also went down nearly 13% to $5.13 per share over the same period.

Methanex has also delivered negative earnings surprises in the last four quarters with an average negative surprise of 11.4%. In fact, the company's fourth-quarter 2014 Earnings ESP (Expected Surprise Prediction) is -3.13%.

Methanex's production has been crippled by shortage of natural gas supplies in various regions. Restricted supply of natural gas continues to affect its operations in Chile, Trinidad and Egypt. The company had to temporarily halt operations at its Egypt plant in Jun 2014 due to gas supply constraints related to higher electricity demand. It expects short-term natural gas curtailment issues across its operations in Chile, Trinidad and Egypt. Methanex saw higher gas curtailments in Trinidad in the third quarter of 2014  than the second.

Methanex is also exposed to volatile methanol prices. However, it stated that methanol prices remained stable or higher across key markets, entering the fourth quarter.

Nonetheless, Methanex estimates total methanol demand for 2014 to be roughly 59 million tons as methanol demand growth in the medium term is strong and will be driven by increased use of methanol in energy applications, accounting for roughly 40% of global methanol demand.

Other Stocks to Consider

Other stocks worth considering in the diversified chemical space include Innospec Inc. (IOSP), Kronos Worldwide, Inc. (KRO) and Valhi, Inc. (VHI), each sporting a Zacks Rank #1 (Strong Buy).

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