Analysts Say Plastics Companies Related To Composites And Packaging Will See Growth

Wall Street analysts said production from composites and packaging-related plastics companies would continue to grow as economic conditions improved, while shifting the cost of raw materials. Frank Mitsch, an analyst at Fermium Research, raised its earnings forecast for Avient, a U.S.-based composites and specialty chemicals company formerly known as PolyVan, as the company's second-quarter results were likely to exceed expectations. "In the area of Special Engineering Materials (SEM), we believe that the second quarter continued the material momentum for outdoor high-performance sports while achieving further success in healthcare," Mitsch said in a June 25 research note. The analyst raised Avient's second-quarter earnings per share (EPS) forecast by $0.03 to $0.83, its 2021 forecast by $0.05 to $2.85 and its 2022 forecast by $0.05 to $3.15. He expects Avient's second-quarter sales to exceed the company's forecast of $1.1 billion to $1.215 billion. While plastic resin prices have risen, Avient has been able to offset raw material costs by raising prices on its own, the analyst said. "Avient's efforts to raise prices to offset rising raw material costs have paid off this year," Mitsch said. "Avient's SEM division produces composites for end markets such as consumers, cables and wires, electrical and electronics, transportation, industrial, healthcare, packaging, construction and construction. He noted that the company also reduced the overall risk of hydrocarbon raw materials by acquiring Clariant's masterbatche business for $1.44 billion in July 2020, with PE and PP currently accounting for only 14 percent of the raw material costs in its specialty business. UBS analyst Joshua Spector reiterated his "buy" rating on Berry Global, the US packaging company, citing modest volume growth, deleveraging and undervaluation. "We believe that Berry's earlier shift to increased investment in organic growth capital expenditures is driving volume growth and expects this trend to continue," Spector said in a June 24 research note. "The analyst expects organic volumes to grow by about 1-2 in the medium term, 5 in fiscal 2021 (through September) and 0.5 in fiscal 2022, with a larger decline in market expectations." UBS analysts expect the cost of raw materials for plastic resins to eventually fall. "Resin prices have remained high for a long time due to persistent supply problems and low inventories. However, we do not believe that the current resin prices will continue, and it is a matter of time since prices fell. "The company's sustainability efforts should also enhance its resilience. "We believe Berry's investments in product redesign, recyclable/recyclable resin supply agreements (nearly 10 percent of sales) and global scale put it ahead of the competition (and possibly even drive growth)," Spector said. "Berry purchased about 3.2 million tons of plastic resin, of which 55 were PE and 40 were PPs, accounting for about 50 of the cost of selling goods. He points out that about 75 customers have a resin price transfer mechanism, with an average one-month lag in passing price changes. In addition, the analyst noted that some contracts allow for an immediate change of hands in the event of extreme fluctuations in raw materials.