'HUNting' For Value? Why Not Consider Huntsman, RBC Says

Huntsman Corporation HUN is a global marketer of differentiated and specialty chemicals.

The Analyst

RBC Capital Markets' Arun Viswanathan initiated coverage of Huntsman with an Outperform rating and $37 price target.

The Thesis

Huntsman's earnings power and attractiveness as an investment is underappreciated by the market for four key reasons, Viswanathan said in a note.

The company is targeting an 85 percent differentiated portfolio and progress towards its goal over the past five years has generated a 400-basis point improvement in EBITDA margins with expectations for an incremental 100 to 200 basis point boost over the coming years.

Seventy-five percent of the company's largest driver of earnings, the Methylene Diphenyl Diisocyanate business, is more inelastic to price changes and makes it less susceptible to commodity fluctuations, the analyst said. The company will also continue to benefit from stable fundamentals in key auto, construction, and housing markets.

The company's "dry powder" over the next three years could reach $2.4 billion and gives management the opportunity to pursue inorganic opportunities or return greater capital to shareholders.

Huntsman's stock offers values to investors as it's trading at just six times 2019 EBITDA estimates, which is more than two points below the peer average of eight times.

Price Action

Shares of Huntsman were trading higher by 3 percent Wednesday at $31.59.

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