Element Solutions (ESI) Up 74% in 6 Months: What’s Driving It?

Element Solutions Inc.

‘s

ESI

shares have surged 74% over the past six months. The rally has resulted in the stock outperforming its

industry

’s decline of 8.8% over the same time frame. The company has also topped the S&P 500’s 19.3% rise over the same period.

Let’s take a look into the factors behind the stock’s price appreciation.

What’s Going in ESI’s Favor?

Element Solutions, a Zacks Rank #2 (Buy) stock, is benefiting from a recovery in its end markets from the coronavirus-induced slowdown. It is seeing healthy demand in its high-end electronics business and a rebound in the automotive industry.

Element Solutions saw a strong recovery in its automotive and industrially oriented businesses in the third quarter 2020 from the second-quarter lows. Its high-end electronics business also continued its momentum in the third quarter, driven by consistent strong demand. Element Solutions believes that it has ample growth opportunities based on the megatrends driving its markets and its ability to outperform its markets through sound strategic execution.

Moreover, the company is implementing a number of cost-containment measures including reduction of traveling costs. These actions are likely to support its margins.

Element Solutions should also benefit from the acquisitions of Kester and DMP Corporation. The Kester acquisition has added capabilities and scale to its existing electronics assembly materials business. Moreover, the DMP buyout has expanded Element Solutions’ investment in technology to offer innovative solutions. The company expects these two acquisitions to benefit its net sales by roughly $15 million in the fourth quarter of 2020.

The company, last month, also announced an increase in its financial guidance. It raised its fourth-quarter adjusted EBITDA guidance to roughly $118 million from its prior view of $90-$95 million. The company expects this to translate to adjusted EBITDA of roughly $415 million for 2020. Element Solutions also sees mid-to-high single digit growth in full-year 2020 adjusted earnings per share. The company noted that its results, in the fourth quarter, were driven by demand from new product launches in the mobile market, a resilient macroeconomic environment and overall strong execution.

Earnings estimates for Element Solutions have also been going up over the past two months. The Zacks Consensus Estimate for 2020 has increased 9.1%. The consensus estimate for 2021 has also been revised 7.7% upward over the same time frame. The favorable estimate revisions instill investor confidence in the stock.

Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include

Fortescue Metals Group Limited


FSUGY

,

Impala Platinum Holdings Limited


IMPUY

and

BHP Group


BHP

.

Fortescue has a projected earnings growth rate of 73.5% for the current fiscal. The company’s shares have surged around 159% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see


the complete list of today’s Zacks #1 Rank stocks here


.

Impala Platinum has an expected earnings growth rate of 131.7% for the current fiscal. The company’s shares have rallied around 31% in the past year. It currently carries a Zacks Rank #1.

BHP Group has a projected earnings growth rate of 49.2% for the current fiscal year. The company’s shares have gained around 30% in a year. It currently carries a Zacks Rank #1.

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