Axiall: Zacks’ Bear of the Day Play

Axiall Corp (AXLLSnapshot Report) has seen significant estimate downgrades over the past ninety days.  This Zacks Rank #5 (Strong Sell) stock has had its stock estimates significantly trimmed for the next two quarters, and for Fiscal Year 2014 & 2015.

The table below shows the estimates revisions for Axiall from the past 90 days for the remaining 2014 quarters and FY 2014 & FY 2015.

Axiall Corp operates as a manufacturer and marketer of two integrated chemical product lines: chlorovinyls, and aromatics.  AXLL also manufactures vinyl-based building and home improvement products.

The main driver behind the downgrades is that prices are moving away from the company.  First, ethylene prices have increased in August and September, creating margin pressure.  Second, PVC prices have been lagging.  Third, caustic soda prices are declining (Chlorovinyls segment product).  And lastly, ethylene purchase contracts are coming up for renegotiation at the year’s end, and it is expected that producers are going to expect higher contract terms.  This would create even more pressure on their margins.

As you can see in the Price and Consensus table below, 2014 & 2015 estimates have significantly fallen due to the issues listed above.

Earnings History

Along with estimates falling, Axiall Corp has had a rough previous few quarters, posting negative earnings surprises three out of the last four quarters, with the last two missing by -5.88%, and -500%.

Valuation

Over the past four quarters Axiall has seen their Return on Capital, Return on Assets, Return on Equity, Gross Margin, and EBIT Margin decline quarter over quarter.  Further, with input costs continuing to increase, margins will continue to decline, and ROC, ROA, and ROE will all decline as well.   This puts significant pressure on any attempt at growth for Axiall.

Bottom Line

Axiall has a tough road ahead of them over the coming 1-3 months due to increased costs, and significant margin pressure.  Further, the Chemical Diversified segment currently ranks in the bottom 12% of all segments covered by Zacks.

Other Stocks to Consider

If you are inclined to invest in the Chemical Diversified segment, there is Valhi Inc. (VHI), which holds a Zacks Rank #1 (Strong Buy).  There are also Koppers Holdings (KOPSnapshot Report), and Lyondellbasel-A (LYBAnalyst Report) which are both are a Zacks Rank #2 (Buy).

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