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LyondellBassell: The Right Chemistry
11/27/2014 7:00 am EST
The leading chemical firm is making its debut in our newsletter—and was discovered using low price-earnings to growth ratio analysis—explains J. Royden Ward, Cabot Benjamin Graham Value Investor.
LyondellBassell Industries (LYB), a Netherlands-based company, emerged from bankruptcy in April 2010, and since then, has produced an enviable record of increasing sales and earnings in each and every year.
The company’s chemicals divisions consist of processing plants that convert liquid and gaseous hydrocarbons into plastic resins and other chemicals. LyondellBassell’s Houston refinery processes crude oil into fuels, such as gasoline, diesel, and jet fuel.
LyondellBasell is a major worldwide manufacturer of ethylene, polyethylene, propylene, polypropylene, propylene oxide, oxygenated fuels, and acetyls.
LyondellBasell’s chemicals are used in packaging, electronics, automotive parts, home furnishings, medical supplies, construction materials, and biofuels. The company is also a major producer of gasoline, diesel fuel, and gasoline blending components.
LyondellBasell is benefiting from the low price of natural gas, a main ingredient for the production of plastic resins, the company’s largest product line. Sales increased 6% and EPS climbed 37% during the 12 months ended September 31, 2014.
The company is upgrading and expanding existing facilities to increase capacity and raise efficiency substantially. Sales will likely rise 6% and EPS will climb 16% to $9.10 during the 12 months ending September 30, 2015.
LYB shares are undervalued with a P/E (current price divided by current earnings per share) of 11.3, a dividend yield of 3.2%, and an attractive PEG ratio of 0.66.
The balance sheet is strong with a reasonable amount of debt and $3 billion in cash to fund further expansion. LYB will likely reach my minimum sell price target of $123.03 within one year. Buy at the current price.
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