Huntsman Corporation (NYSE:HUN) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Huntsman Corp.’s analysis versus peers uses the following peer-set: The Dow Chemical Company (NYSE:DOW), Eastman Chemical Company (NYSE:EMN), Ashland Inc. (NYSE:ASH), Rockwood Holdings, Inc. (NYSE:ROC), Cytec Industries Inc (NYSE:CYT), PolyOne Corporation (NYSE:POL) and Kronos Worldwide, Inc. (NYSE:KRO). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Quarterly (USD million)||2012-09-30||2012-06-30||2012-03-31||2011-12-31||2011-09-30|
|Revenue Growth %||(5.9)||0.0||10.7||(11.6)||1.4|
|Net Income Growth %||(7.9)||(24.6)||68.7||N/A||(138.6)|
|Net Margin %||4.2||4.3||5.7||3.8||(1.5)|
|ROE % (Annualized)||22.6||26.6||37.5||22.9||(9.0)|
|ROA % (Annualized)||5.3||5.7||7.6||4.5||(1.9)|
Huntsman Corp.’s current Price/Book of 1.7 is about median in its peer group. We classify HUN-US as Harvesting because of the market’s low expectations of growth (PE of 7.4 compared to peer median of 18.8) despite its relatively high returns (ROE of 25.3% compared to the peer median ROE of 18.5%).
The company’s median net profit margins of 4.5% and relative asset efficiency (asset turns of 1.2x compared to peer median of 0.8x) give it some operating leverage. HUN-US’s net margin continues to trend upward and is now over one standard deviation above its five-year average net margin of 1.7%.
HUN-US’s return on assets currently is around peer median (5.7% vs. peer median 4.9%) — similar to its returns over the past five years (2.1% vs. peer median 2.0%). This performance suggests that the company has no specific competitive advantages relative to its peers.
The company’s comparatively low gross margins of 21.8% versus peer median of 28.7% suggests that it has a non-differentiated strategy or is in a pricing constrained position. However, HUN-US’s pre-tax margin of 6.1% is around the peer median which, when combined with the gross margin, suggests lower operating costs relative to peers.
Growth & Investment Strategy
While HUN-US’s revenues growth has been above the peer median (3.2% vs. 1.8% respectively for the past three years), the stock’s PE ratio of 7.4 is less than the peer median. This implies that the company’s earnings are peaking and the market expects a decline in its growth expectations.
HUN-US’s annualized rate of change in capital of 0.7% over the past three years is less than its peer median of 7.6%. This below median investment level has also generated a less than peer median return on capital of 2.0% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.
HUN-US’s net income margin for the last twelve months is around the peer median (4.5% vs. peer median of 5.1%). This average margin combined with a level of accruals that is around peer median (3.5% vs. peer median of 3.1%) suggests there possibly isn’t too much accrual movement flowing into the company’s reported earnings.
HUN-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.