BMO: Chemours' Second Half 'More Difficult Than Anticipated'

Recent data indicates that Chemours Co CC faces challenges in several end markets, suggesting the company’s rebound in the second half of this year could be slower than expected, according to BMO Capital Markets.

The Analyst

John McNulty maintained an Outperform rating on Chemours and reduced the price target from $50 to $45.

The Thesis

Checks indicate that Chemours witnessed sluggish demand in the second quarter, with weather affecting the coatings business, a continued slowdown in the automotive sector and mixed consumer sentiment in the international market, McNulty said in a Monday note. (See his track record here.) 

The trends indicate that the widely expected uptick in the second half is likely to be “more difficult than had been anticipated,” the analyst said. 

The sequential pickup that was expected in the second quarter is likely to be limited due to soft coatings demand and continued share loss in plastics, McNulty said. Although there may be some recovery in the back half of the year, the rate of improvement could be muted unless “the coatings space can make up for lost time,” he said. 

The fluorochemicals business remains under pressure, the analyst said. The continued dumping of low-cost illegal refrigerants by China into the European markets has kept prices low in Europe, impacting the adoption of European non-ozone-depleting refrigerants, he said.

This has exerted pressure on prices in the U.S., McNulty said. 

Some fluoropolymer end markets also remain challenging, with weak demand and attempts by customers to control costs, the analyst said. 

BMO lowered its second-quarter EPS estimate from 97 cents to 67 cents and reduced EPS estimates for 2019, 2020 and 2021 to $3.65, $5.06 and $5.91, respectively.

Price Action

Chemours shares were down more than 2% at $24.36 at the time of publication Monday. 

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