Analyst sees Huntsman's margins improving as crude prices fall, guides 4Q above Street
BB&T Capital Markets analyst Frank J. Mitsch said that for every $10 barrel change in the price of crude, Huntsman's raw-material prices change by $140 million annually.
Meanwhile, Huntsman remains slated to be bought by Hexion Specialty Chemicals Inc. for more than $6 billion.
Mitsch rates Huntsman "Buy" with a $28 price target, suggesting he expects the stock to more than triple over Thursday's $8.30 close.
He expects Huntsman to earn 15 cents per share for the fourth-quarter, 34 cents per share for 2008 and 85 cents per share for 2009.
Analysts polled by Thomson Reuters expect, on average, fourth-quarter earnings of 13 cents per share, 2008 earnings of 39 cents per share and 2009 earnings of 84 cents per share. Analysts typically exclude one-time charges.
Yet despite the rosy outlook on falling crude prices, Huntsman may find itself up against a weak economy, he said,
"We believe that improved pricing and margins due to falling (raw-material prices) will continue to be offset by weak demand," Mitsch said in a note to clients.
Huntsman agreed to be bought by Hexion in July 2007 for about $6.51 billion, but in September Hexion tried to scuttle the deal, citing Huntsman's deteriorating finances. A Delaware judge ordered Hexion to keep the buyout on track, essentially dismissing pleas the combined company would not be solvent.
However, two banks that had been slated to fund the deal backed away last month, and a New York judge declined to extend a financing agreement.
Hexion, bound by the Delaware court's ruling, is still seeking financing and is suing the banks, but the troubled credit markets mean it will have a tough time securing such a large sum.
Shares have traded between $7.01 and $26.19 in the past 52 weeks.