Huntsman Corporation (HUN): Chemical company recovering

Huntsman Corporation (NYSE: HUN), headquartered in Woodland, Texas, is a multinational corporation that manufactures and markets a variety of consumer and industrial chemical products. Their specialty lies in the manufacture of various polyurethanes, adhesives and even performance products. Their market is resilient, serving as the specialty chemical company of choice for big companies like BMW, Proctor & Gamble (NYSE: PG), and Chevron (NYSE: CVX). The company is home to over 70 research and development facilities in 30 countries worldwide. Founded in 1970, the company has grown to great heights, becoming the world’s best-known color and white pigment company and the fifth-largest insulation manufacturer.

In this article, I’ll show that despite a rough 2020, Huntsman has shown signs of positive value lately. The pandemic has been tough on almost every company, but Huntsman is showing signs of a year of recovery. With the expected growth in the chemical market coupled with Huntsman’s improving financials, the company will prove to be a slower but steady investment.

Huntsman’s diverse portfolio maintains shareholder value

The company has a diversified production portfolio. They have a very eclectic list of chemicals that they make and their uses vary widely. Because the market, partnerships, and pipeline are so different for all four, investors need to analyze each category to look for strengths, weaknesses, and overall value. The first category is polyurethanes.

Polyurethanes are by far Huntsman’s premier manufacturing chemical subspecies. These chemicals are used in various items, most notably spray foam insulation. As insulation is one of the leading products that Huntsman manufactures and sells, it makes sense that key chemical properties should be manufactured in-house. The polyurethanes manufactured by Huntsman are also used in car seats, leading to lucrative contracts with other companies like BMW that use chemicals to make their car seats. These chemicals are also used in other manufacturing areas, from shoes to adhesives, making them highly effective versatile and lucrative. The manufacture and sale of polyurethanes accounts for almost 60% of all Huntsman revenues.

The second most important source of revenue for Huntsman Corporation is so-called “performance products.” These are products manufactured and developed for specific purposes for specific industries. One of the biggest sellers in this category is agrochemicals. These are chemicals used in agriculture and cultivation and can include anything from specialized growth chemicals to pesticides – another form of performance product chemicals used in oilfield maintenance and production. Oil is a big seller here in the US and any chemical developed to help the equipment pull black gold out of the ground has value and longevity in the marketplace. All told, performance products account for 17% of sales generated from Huntsman products.

Another slightly more ambiguous sales category for Huntsman products is advanced materials. Advanced materials have a wide range of different products associated with their title. Perhaps most notable is the electrical insulation. This is a common building product and is expected to have a large market and deservedly generate a large number of sales. Another less common but likely more lucrative sub-category of revenue is aerospace products. Anything that helps planes fly or can be used for things that are launched into space are generally nuance and thus add value. Advanced materials account for 12% of the company’s sales.

The final sales category of Huntsman’s earnings is textile effects. Chemical companies are often associated with textiles. This industry includes everything from sportswear and evening wear to home textiles. Clothing is a big seller and the fact that Huntsman is associated with this type of item in the sales arena is once again good for sales and good for longevity. While textile effects are the lowest revenue percentage of the company’s offerings, they still account for a healthy 10% of sales.

future optimism

Huntsman has made serious progress investing in a brand new manufacturing facility in Conroe, Texas. The facility, which is expected to start generating sales as early as next year, is designed to produce a revolutionary new chemical known as ultra-pure ethylene carbonate. This chemical increases the operating voltage in the new wave of lithium-ion batteries that power electric cars. Given the responsibilities of environmental safety and the move away from fossil fuels, this could be a game changer and a significant investment for the future. Getting involved in the lithium-ion battery market for electric vehicles could prove hugely lucrative for Huntsman given its expected massive growth in the coming years. According to recent forecasts, the size of the global electric vehicle market is expected to be exceeded $154.9 billion by 2028 – which translates to a (OTC:CAGR) of 28.1% over a seven-year period beginning in 2021. With the innovations seen in Huntsman’s novel high-purity ethylene carbonate chemical, it’s not hard to imagine the potential profitability in the coming year when the new plant in Conroe vehicle supply chain is becoming an important part of global electricity.

Financial overview

Huntsman Corp suffered a revenue drop in 2020, marking the third of four years that they have seen revenue decline. Eventually, however, things could turn around. As supply chain issues begin to unravel and underlying demand for chemicals increases, Huntsman has reported its first significant sales increase since 2018. With reported 2021 sales of $7.8 billion, the company appears to be on track to expand its reach within the chemicals market.

On the other hand, 2020 net income saw the strongest increase in the past four years. The company reported net income of just over $1 billion in 2020, almost double the 2019 figure $562,000,000. While it may seem odd on the surface that it also posted record net income in a year when revenue declined, it’s important to understand exactly how Huntsman Corporation makes much of its money. This method comes into play in the practice of buying and selling various other businesses, which instead appear in the cash flow report as income from “other investing activities”. In this category, Huntsman Corp posted a valuation of $1.7 billion.

A company gradually paying down its debt is a sign of a company on the right track, which should make investors a little more optimistic. Huntsman Corporation has $1.5 billion in long-term debt, which is a pretty high number, but also well below it $2.2 billion That debt totaled as of 2018. Their total liabilities are just under $5 billion, a significant decrease from 2017 when Huntsman was saddled with $7.6 billion in debt. The company also holds $1.5 billion in corporate surpluses that will no doubt be used to pay down more debt in the future, providing evidence that current investments have been at least moderately profitable.

Conclusion

Admittedly, there isn’t much to be overly excited about in terms of Huntsman Corporations’ past financials. While they’ve increased their net income and paid off some of their debt, their earnings have declined in recent years. Any reason to invest in Huntsman Corporation must be based on a long-term perspective. Against this background, their sudden drop in sales combined with their innovative new battery technology and the opening of a manufacturing facility for this battery formula offers opportunities for future profits for investors. The future finally looks brighter for Huntsman — the company is expected to grow revenue and benefit from cleaner margins on its balance sheet. With the chemical market expected to grow, Huntsman will prove to be a solid investment. All of these factors should signal potential investors that there is ample opportunity to build a long-term position on the horizon, but the current price may be too high to justify an immediate investment – investors looking to buy may want to wait for a pullback or short-term ones Correction.