3 Chemical Specialty Stocks to Watch Amid Industry Challenges

Industry Overview - The Zacks Chemicals Specialty industry is facing challenges due to sluggish demand, particularly from Europe and a slow recovery in China, leading to pressure on margins from elevated input, supply chain, and logistics costs [1][3][4] - The industry includes manufacturers of specialty chemical products used in various end-use markets such as textiles, automotive, electronics, and agriculture [2] Demand Challenges - Companies are experiencing demand softness in building and construction and industrial end markets, primarily in Europe and China, due to economic slowdowns and high inflation [3] - Elevated borrowing costs have negatively impacted the residential construction industry, while manufacturing activities have weakened amid softer demand for goods [3] Cost Pressures - Specialty chemical makers are dealing with raw material cost inflation and disruptions in supply chains and freight transportation, exacerbated by geopolitical tensions and COVID-19 related factory closures [4] - Although raw material costs have moderated recently, they remain higher than pre-pandemic levels, continuing to affect margins [4] Strategic Measures - Companies are implementing self-help measures such as cost-cutting, productivity improvements, and expansion into high-growth markets to navigate the challenging environment [5] - These actions are aimed at enhancing operational efficiency and strengthening balance sheets to boost cash flows [5] Industry Performance - The Zacks Chemicals Specialty industry has underperformed compared to the S&P 500 and the broader Zacks Basic Materials sector, with a loss of 9.2% over the past year [8] - The industry's current valuation, based on the trailing 12-month EV/EBITDA ratio, stands at 19.77X, higher than the S&P 500's 18.87X and the sector's 11.47X [9] Company Highlights - Hawkins, Inc.: Focused on water treatment, experiencing strong growth through strategic acquisitions and a judicious pricing strategy to counter cost inflation, with expected earnings growth of 15.3% for the current fiscal year [10][11] - AdvanSix Inc.: Benefits from a differentiated product portfolio and favorable demand conditions, with a consensus estimate for current-year earnings revised upward by 27.3% [12] - Axalta Coating Systems: Engaged in coatings solutions, benefiting from strength in refinish and light vehicle businesses, with expected earnings growth of 31.8% for the current year [14]