BofA Upgrades Venator, Downgrades Celanese

Some commodity and diversified chemical stocks have surpassed their valuations, although there could be upside to 2021 estimates given the development of COVID-19 vaccines, according to BofA Securities.

The Chemicals Analyst: Steve Byrne downgraded Celanese Corporation CE from Neutral to Underperform and raised the price target from $118 to $121.

The analyst upgraded Venator Materials PLC VNTR from Underperform to Buy and raised the price target from $1.75 to $4.

The Chemicals Thesis: Commodity stocks may continue to outperform specialty equities, “though a next leg must be predicated on earnings traction,” Byrne said in a Monday note. 

Celanese’s stock is at record highs, which may be “difficult to sustain” given the “long path back to normal in part predicated on commodity margins,” the analyst said.

“This is particularly true as we think a contributor to outperformance has been the $500mn in committed 4Q share repurchases, a tailwind which should wane as we move to year-end,” he said. 

Referring to Venator Materials, Byrne said the upgrade comes “as traction in Asian TiO2 markets has closed the arbitrage window into Europe.

“With an improving supply balance in that market likely, Kronos has increased prices effective 1Q21 by $150/mt. We would expect others to join in with similar announcements. This price traction comes as line of sight into raw material deflation at VNTR has improved, allowing for further margin expansion.”