On Thursday, RBC Capital provided an optimistic outlook for the Chemicals & Packaging (NYSE:PKG) sector for the year 2025, highlighting positive volume trends driven by lower rates that would boost industrial and construction activity.
The outlook also anticipates an increase in mergers and acquisitions due to a lighter regulatory environment, as well as higher tariffs that could affect import/export pricing, alongside improving consumer strength.
RBC Capital underscored the potential margin improvement before demand starts to improve and identified companies with strong operating leverage and potential for positive volume growth in the second half of the year as favorable.
The firm expects the second half of 2025 to show better performance than the first half for most of its coverage. In the Commodity Chemicals space, RBC Capital favors companies like CC and WLK, citing their potential for sharp rises on recovery in global demand, particularly from regions like China and Europe.
The analyst believes that current favorite names have self-help and unique growth exposure, with CC positively viewed due to lower raw material costs for titanium dioxide and strong performance in its TSS segment. WLK is also favored for its integrated model and expected benefits from lower rates and industrial spending.
In the Specialty Chemicals sector, RBC Capital prefers ALB and DD. ALB is recognized as the largest, lowest cost lithium producer with a disciplined capital allocation that supports growth and dividend growth, despite some uncertainty in electric vehicle demand.
DD is noted for its anticipated spin-off of its Electronics and Water segments and focus on share buybacks. The analyst also expressed a positive stance on FMC (NYSE:FMC) and CTVA, with a raised target for CTVA to $73 from $68, due to the end of destocking and one-time weather impacts, and visible annual earnings growth.
For Coatings, RBC Capital favors AXTA and SHW, with AXTA appreciated for its execution, favorable price/cost dynamics, and margin expansion initiatives. SHW, currently valued at $86.84 billion in market cap, is liked for its potential market growth and share gains, along with expected EBIT margin expansion in 2025.
According to InvestingPro, SHW maintains an impressive 48.46% gross profit margin and has raised its dividend for 32 consecutive years, though it currently trades at a relatively high P/E ratio of 33.95. The stock appears overvalued based on InvestingPro's Fair Value analysis, with analyst price targets ranging from $242 to $450.
The report also notes that existing home sales remain weak but could improve in the second half of 2025 due to lower rates.Want deeper insights? InvestingPro offers 10+ additional exclusive tips about SHW, including detailed profitability metrics and growth indicators. Access the comprehensive Pro Research Report covering what really matters for smarter investment decisions.
In the Packaging segment, CCK and OI are the preferred names. CCK's strong North American volumes in 2024 are expected to continue growing with the market, while OI's new strategy is projected to add significant EBITDA growth independent of volume.
The analyst highlighted CCK's attractive valuation and OI's potential gains through cost reductions and operational efficiencies.Looking for more comprehensive analysis of chemical and packaging stocks? InvestingPro provides detailed financial health scores, Fair Value estimates, and expert insights for over 1,400 US stocks, helping you make more informed investment decisions.
In other recent news, Sherwin-Williams (NYSE:SHW) has made significant financial strides, amending its credit agreement to extend the maturity of $75 million in commitments. This move, in collaboration with Citicorp USA and other lenders, extends the maturity date to December 20, 2029.
Recently, Sherwin-Williams has been the focus of several analyst adjustments after its third-quarter performance. Evercore ISI revised its outlook on the company, raising the stock's price target from $400.00 to $420.00 and maintaining an Outperform rating. Evercore ISI's analysis suggests Sherwin-Williams remains a key long-term investment, with the company expected to achieve a 1.4x premium over the S&P 500.
Additionally, RBC Capital, Baird, and Goldman Sachs have adjusted their price targets for Sherwin-Williams. Notably, RBC Capital revised its price target to $446, Baird raised its target to $360, and Goldman Sachs retained its $410 target.
In the third quarter of 2024, despite temporary store closures due to hurricanes, Sherwin-Williams reported consolidated sales growth, improved gross margins, and increased earnings per share. The company also announced a 5% price increase set for January 2025, expected to contribute to margin expansion.
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