Materials firm Solstice Advanced Materials, Inc. (NASDAQ:SOLS)’s shares closed a whopping 12.8% higher on August 28th after the firm announced that it had ended its plans to merge with Element Solutions Inc (NYSE:ESI). The reversal came after the stock had lost more than 20% in the days after it had announced the merger. Cramer discussed Solstice Advanced Materials, Inc.’s nuclear business in his morning appearance on the 28th:
“I had both companies on, a couple of times in case of Solstice, Solstice is a spinoff of Honeywell. And it’s a chemical company but it does have this really innate business about nuclear power! . . .what’s so funny is that Elements Solution was, maybe until recently, don’t forget this was, the actual core nature of what chips are made with. And it’s such a great company. When I first heard it, well it’s kind of interesting, materials to materials, but, and I knew about this business that’s nuclear. But people are so desperate for nuclear that actually makes money. And there’s not a lot of those.”
Element Solutions Inc is a high specialty chemicals company. Its markets are primarily the electronics and industrial sectors. As a result, the firm’s business depends on global industrial, consumer, and technology markets. Subsequently, the ongoing AI buildout has helped the firm, as its revenue grew by 56% annually to $977 million in the second quarter and both revenue and earnings per share beat analyst estimates.
Element Solutions Inc aligns closely with the AI infrastructure buildout as its products enable the construction of printed circuit boards (PCBs), high density interconnects and semiconductor packages. The latter two are quite in demand as they form the backbone of advanced GPUs that are part of packages that pack together AI chips and memory chips. Yet, at the same time, the reliance on electronics and AI buildout could create tailwinds in the case of a slowdown.
Shifting towards Solstice Advanced Materials, Inc., it does share a lot of details publicly for a nuclear business. The nuclear business grew revenue by 27% in the second quarter and is driven by uranium enrichment, small modular reactor (SMR) supply and defense use cases. SMRs are a growing category of reactors that are easily deployable compared to their traditional peers.
The growth in the nuclear revenue was also indicated by the business growing its contribution to 10.9% of Solstice Advanced Materials, Inc.’s revenue over the year-ago quarter’s 9.5%. Looking at this growth, the firm is debottlenecking its Illinois uranium conversion facility to produce more than ten kilotons of uranium. Additionally, Solstice Advanced Materials, Inc. could also benefit from the US growing its domestic high assay low enriched uranium (HALEU) supply in order to reduce reliance on Russia. As a whole, sustained demand for electronics and refrigerants can create tailwinds while high long term debt and electronics cyclicality could generate headwinds.
On the valuation front, both stocks trade in the 16x to 17x range for their forward P/E. However, Solstice Advanced Materials, Inc.’s short interest as a percentage of float is 7.78% which is higher than ESI’s 3.67%. Yet, hedge fund interest in the former is significantly higher, with 72 funds in Insider Monkey’s database holding a stake compared to 44 for the latter.
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