North American And Chinese Production Will Fortify MDI Operations

Key Takeaways

• Tariffs reducing MDI imports may boost Huntsman's domestic production and revenue in North America.
  
• Cost recalibration and asset rationalization are expected to improve net margins by reducing operating expenses.
  
• Global trade tensions, high energy costs, and market volatility in key sectors could destabilize Huntsman's revenue and margins.

Catalysts

Manufactures and sells diversified organic chemical products worldwide.

• The reduction in MDI imports due to tariffs will likely increase domestic production, boosting volumes and potentially revenue for Huntsman in North America.
  
• Stabilization and a slight recovery in MDI prices amidst falling raw material costs may lead to margin expansion and improved earnings.
  
• The company's strategic positioning with domestic production in China could capitalize on stabilizing local MDI prices, enhancing regional revenue and margins.
  
• Huntsman's focus on recalibrating costs and exploring asset rationalization opportunities is expected to improve net margins through reduced operating expenses.
  
• The exploration of asset opportunities and portfolio enhancement could potentially drive revenue growth and shareholder value creation, supported by a strong balance sheet and liquidity position.

Huntsman Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Huntsman's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.3% today to 5.1% in 3 years time.
• Analysts expect earnings to reach $350.0 million (and earnings per share of $1.27) by about May 2028, up from $-136.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, up from -15.5x today. This future PE is lower than the current PE for the US Chemicals industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 0.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Huntsman Future Earnings Per Share Growth

Risks

• The uncertainty in global trade and imposition of reciprocal tariffs, particularly between the U.S. and China, could affect Huntsman's supply chain and customer demand, leading to decreased revenue and earnings volatility.
  
• The disconnect between order patterns and downstream demand, especially significant drops in industries like automotive and construction, may lead to suppressed volumes and disrupt revenue expectations.
  
• High energy costs and lack of clear industrial policy in Europe present risks to Huntsman's operations and cost structure in the region, potentially affecting net margins negatively.
  
• The impact of tariffs on major chemical products like MDI could alter competitive dynamics and prices, influencing revenue and margin stabilization unfavorably.
  
• Downstream customer uncertainty and economic volatility, such as in the residential and commercial construction markets, can depress overall demand, impacting volume-driven earnings potential and revenue growth.

Valuation

• The analysts have a consensus price target of $17.077 for Huntsman based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.9 billion, earnings will come to $350.0 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $12.12, the analyst price target of $17.08 is 29.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.