DowDuPont Kills the Rally in Chemical Stocks But Sherwin-Williams Fights On

(Bloomberg) -- DowDuPont Inc.’s 2019 profit warning stopped a five-week rally in chemical stocks dead in its tracks Thursday, but Sherwin-Williams Co. helped stanch the bleeding.

A lot’s riding on the state of fourth quarter earnings. The S&P 500 Chemicals Index is up about 12 percent since its low on Christmas Eve, and plenty of analysts figured most of the bad news was already priced-in and the sector may have found a bottom.

DowDuPont is far and away the biggest stock in the chemical group, accounting for more than a quarter of the index. The index saw its biggest decline since early December on Thursday, fueled by DowDuPont’s worst day in more than three years.

For all that, Morgan Stanley thought it may have seen a silver lining in DowDuPont’s warning, saying the Delaware-based stalwart is being conservative in its outlook because of continued macro uncertainty and the pending split. This may lead investors to ultimately view "the overall story as de-risked," analyst Vincent Andrews wrote.

DowDuPont Kills the Rally in Chemical Stocks But Sherwin-Williams Fights On

DowDupont’s slump turned back the chemicals group, which Wednesday threatened to break above its 100-day moving average.

The bright spot Thursday came from Sherwin-Williams Co., which rose as much as 5.5 percent, even after reporting lower-than-estimated fourth quarter adjusted earnings and issuing 2019 guidance. Baird analyst Ghansham Panjabi said the earnings report was a “net positive” for the shares and Sherwin will continue to build on its earnings momentum throughout 2019. He also noted that the fourth quarter earnings were in-line with Sherwin’s Jan. 15 warning.

Other movers and related news within the sector include:

  • LyondellBasell Industries fell as much as 3.4 percent. RBC analyst Arun Viswanathan expected LyondellBasell , Westlake Chemical and Huntsman Corp. to trade lower in sympathy of DowDuPont.
  • Eastman Chemical also fell as much as 3.5 percent, ahead of its earnings report that’s due post-market on Jan. 31.
  • Methanex fell after its adjusted earnings per share for the fourth quarter missed the lowest analyst estimate. BMO analyst Joel Jackson thinks the fourth quarter miss "looks bad for a stock with leading YTD materials performance," but methanol fundamentals seem stable.
  • Celanese fell 2.5 percent, while FMC Corp. declined 3.7 percent intraday. Celanese reported on Jan. 28. FMC reports on Feb. 11 post-market, with option implied earnings related share move of around 4.5 percent.
  • Lithium producer Albemarle’s held steady amid the chemical sell-off, gaining as much as 1.7 percent. Some analysts were predicting the stock to be a stand-out within the group this earnings season, due to its lithium exposure. The company reports on Feb. 20, post-market.

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