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24 août, 2005 12:50

Market Scan

Ed Lin, 08.24.05, 10:36 AM ET

Credit Suisse First Boston slashed earnings estimates in the commodity chemicals sector.

CSFB noted earlier this month that because the cost of natural gas and oil derivatives, which vary day-by-day, are rising rapidly, "some delay in raising the contract price of chemical products almost always occurs."

"The surprisingly large jump in hydrocarbon and energy costs means that margin compression is worse than anticipated," the research firm said. Price hikes in hydrocarbon- and energy-intensive products are starting to take hold and CSFB cited as examples: polyethylene, ethylene glycol, propylene and caustic soda.

"While profit margins in the June/July period are at their nadirs, even though raw material spreads (price minus raw material cost) are beginning to improve in August, the third-quarter average is likely to be less than that of the second quarter for the typical commodity plastic," CSFB said. "However, more intense raw material pressure--combined with low customer inventories and several unplanned mechanical outages--increases the chance of price hikes to higher levels than they might have been. Although we expect lower margins in the third quarter, owing to the normal "lag" in effecting price hikes, healthier spreads are likely as the fourth quarter commences."

CSFB cut the third-quarter earnings estimate for Dow Chemical (nyse: DOW - news - people ) to 84 cents per share, down from 92 cents, and cut the 2005 estimate to $4.40 from $4.50. The firm, which rates Dow Chemical at "outperform," kept the price target at $63.

The firm cut the third-quarter earnings estimate for Lyondell Chemical (nyse: LYO - news - people ) to 45 cents per share, down from 58 cents, and cut the 2005 estimate to $2.40 from $2.60. It rates Lyondell at "outperform" and left the price target at $36.

CSFB cut the third-quarter earnings estimate for Eastman Chemical (nyse: EMN - news - people ) to $1.25 per share, down from $1.45, and cut the 2005 estimate to $5.70 from $6.00. It also cut the 2006 earnings estimate to $6.25, down from $6.50. The firm, which rates Eastman at "outperform," cut the price target to $69 from $71.

The firm cut the third-quarter earnings estimate for Georgia Gulf (nyse: GGC - news - people ) to 70 cents per share, down from 85 cents, and cut the 2005 estimate to $2.75 from $2.97. It also cut the 2006 earnings estimate to $5.25 per share, down from $6.00. CSFB, which rates Georgia Gulf at "outperform," cut the price target to $47 from $54.

CSFB widened the third-quarter loss estimate for Nova Chemicals (nyse: NCX - news - people ) to 30 cents per share, from a loss of 5 cents, and cut the 2005 earnings estimate to $1.40 from $1.80. It also cut the 2006 earnings estimate to $5.25 per share, down from $5.85. CSFB, which rates Nova at "outperform," cut the price target to $46 from $51.

The firm cut the third-quarter earnings estimate for Westlake Chemical (nyse: WLK - news - people ) to 50 cents per share, down from 64 cents, and cut the 2005 estimate to $2.65 from $2.90. It cut the 2006 earnings estimate to $4.00 per share, down from $4.10. CSFB, which rates Westlake at "neutral," cut the price target to $34 from $35.

CSFB cut the third-quarter earnings estimate for PPG Industries (nyse: PPG - news - people ) to $1.10 per share, down from $1.25, and cut the 2005 estimate to $4.65 from $4.90. It cut the 2006 earnings estimate to $5.85 per share, down from $6.00. The firm, which rates PPG at "neutral," cut the price target to $73 from $75.