KeyBanc On Specialty Chemicals: Upgrades Chemtura, Innospec To Overweight

Both these petroleum additive companies – Chemtura Corp (NYSE: CHMT) and Innospec Inc. (NASDAQ: IOSP) – have favorable M&A prospects. KeyBanc’s Ivan Marcuse upgraded the ratings for the companies from Sector Weight to Overweight, saying that both “possess attractive risk-reward skews around the ongoing theme of M&A within the Specialty Chemicals sector.”

Shares of Chemtura and Innospec have underperformed year-to-date, and trade close to the low end of their normalized historical ranges. YTD, Innospec’s shares have declined 20.5 percent, while Chemtura’s shares are down 3.4 percent, versus a 1.3 percent gain in the S&P 600.

M&A Prospects

Low growth opportunities in the end markets, robust balance sheets and low financing costs are triggering M&A activity in the Specialty Chemicals sector, Marcuse noted. He believes that Chemtura and Innospec could be buyers or sellers, and the two companies “should consider combining.”

Optionality to pursue M&A “represents a potential catalyst for both names, and moreover, there are merits to the two linking up, strategically amassing greater collective scale and reorienting their combined portfolio toward more attractive end markets,” the analyst explained.