Market Overview

Citi's Chemicals And Agriculture Pair Trade: Buy Mosaic, Hold Sherwin-Williams

Citi's Chemicals And Agriculture Pair Trade: Buy Mosaic, Hold Sherwin-Williams

In a preview of third-quarter earnings in the chemical and agriculture sector, Citigroup highlighted a pair trade in the sector. 

The sell-side firm recommended buying Mosaic Co (NYSE: MOS) but moving to the sidelines on Sherwin-Williams Co (NYSE: SHW).

The Analyst

Analyst P.J. Juvekar upgraded Mosaic from Neutral to Buy with a price target lifted from $36 to $40. Sherwin-Williams was downgraded from Buy to Neutral with a price target cut from $492 to $435. 

Citi also removed Buy-rated DowDuPont Inc (NYSE: DWDP) from its Focus List.

The Thesis

Ongoing raw material headwinds and slower growth in key markets such as China has tempered expectations in the chemicals sector, Juvekar said in a Wednesday note. (See the analyst's track record here.) 

The analyst reduced estimates as well as target multiples by up to 1 times EV/EBITDA.

Higher oil and ethane prices and slower demand would make it tough to take advantage of price increases, Juvekar said. 

Among the paint makers, Sherwin-Williams is unlikely to dodge raw material and end market woes outlined by peers PPG Industries, Inc. (NYSE: PPG) and HB Fuller Co (NYSE: FUL), the analyst said. 

PPG recently warned of higher material costs and weak Chinese demand in addition to higher logistics expenses arising from higher crude oil prices and a stronger dollar.

Citi reduced its third-quarter as well as fiscal 2019 EPS estimates for Sherwin-Williams to $5.72 and $22, respectively, and slashed the price target by $57. 

On the other hand, Citi sees Mosaic as benefiting from improving phosphate fundamentals.

The Price Action

Sherwin-Williams shares have added about 1.8 percent year-to-date, while Mosaic has gained about 17 percent.

Related Links:

With Sale of Agricultural Business Pending, Citi Takes Neutral Stance On Platform Specialty Products

5 Agriculture Stocks That Could Withstand A Trade War With China

Latest Ratings for SHW

Oct 2020Morgan StanleyMaintainsOverweight
Oct 2020UBSMaintainsNeutral
Sep 2020Credit SuisseMaintainsOutperform

View More Analyst Ratings for SHW
View the Latest Analyst Ratings


Related Articles (MOS + SHW)

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