LyondellBasell (LYB - Analyst Report) delivered a big positive earnings surprise for Q1, driven by huge increases in its profit margins. This prompted analysts to revise their estimates significantly higher for both 2015 and 2016, sending the stock to a Zacks Rank #1 (Strong Buy).
Shares look attractively priced too at just 10x forward earnings. The Zacks Value Style Score for LYB is an 'A'.
LyondellBasell Industries is a plastics, chemicals and refining company. It manufactures ethylene, polyethylene, propylene, polypropylene, propylene oxide, oxygenated fuels and acetyls. The company also produces gasoline, diesel and gasoline blending components. Its products serve various end markets, including packaging, electronics, automotive parts, home furnishings, medical supplies, construction materials and biofuels.
LyondellBasell reports its results in five segments:
- Olefins and Polyolefins - Americas (55% of total EBITDA): produces and markets olefins, including ethylene and ethylene co-products, and polyolefins.
- Olefins and Polyolefins - Europe, Asia, International (19%): produces and markets olefins, including ethylene and ethylene co-products, polyolefins and specialty products, including polybutene-1 and polypropylene compounds.
- Intermediates and Derivatives (21%): produces and markets propylene oxide and its co-products and derivatives, acetyls including methanol, ethylene oxide and its derivatives, ethanol and oxygenated fuels, or oxyfuels.
- Refining (1%): refines heavy, high-sulfur crude oil and other crude oils of varied types and sources available on the U.S. Gulf Coast.
- Technology (3%): develops and licenses chemical and polyolefin process technologies and manufactures and sells polyolefin catalysts.
First Quarter Results
LyondellBasell delivered better-than-expected first quarter results on April 24. Adjusted earnings per share came in at $2.54, crushing the Zacks Consensus Estimate of $1.94. It was a 56% increase over the same quarter last year.
Revenue declined 26% year-over-year to $8.185 billion. This was due to the drop in crude oil prices, which pressured product prices. However, as CEO Bob Patel stated "the abundance of low cost natural gas-based raw materials, supply and demand tightness in several products, and our flexible portfolio provided balance to offset the impact of lower prices."
This can be seen in the gross profit margin, which expanded from 14.0% of revenue in the first quarter of 2014 to 22.1%. Meanwhile, operating income soared from 12.0% of revenues to 19.2%.
Operating income in the 'Olefins and Polyolefins - Americas' segment surged 42% as the segment operating margin expanded from 19.5% to 36.6%.
Operating cash flow in the quarter jumped 83% year-over-year to $1.468 billion. This allowed the company to return a whopping $1.69 billion to shareholders in the quarter through stock buybacks and dividends.
Estimates Soaring
Following strong Q1 results, earnings estimates soared for LyondellBasell, sending the stock to a Zacks Rank #1 (Strong Buy). The 2015 Zacks Consensus Estimate has jumped from $7.62 to $9.68 over the last 90 days, while the 2016 consensus has risen from $8.68 to $10.20 over the same period.
Reasonable Valuation
The valuation picture looks very reasonable for LyondellBasell. The stock trades at just 10x 12-month forward earnings. And its enterprise value to cash flow ratio is also around 10.
The Zacks Value Style Score for LYB is an 'A'.
The Bottom Line
With expanding profit margins, rising earnings estimates and attractive valuation, LyondellBasell offers investors a lot to like.
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