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On Wednesday, Bernstein analysts highlighted their continued preference for industrial gas majors in the European Chemicals sector, particularly emphasizing Linde (NYSE:LIN) and Air Liquide (OTC:AIQUY), both rated as ’Outperform’. Amidst ongoing tariff disputes and a year marked by industrial growth challenges, Linde stands out for its robust financial model and consistent growth. The analysts underscored Linde’s impressive track record, including 25 consecutive quarters of earnings per share (EPS) surpassing Bloomberg consensus and sequential underlying earnings growth.
Air Liquide also maintains an ’Outperform’ rating, with analysts noting the defensive strengths of the industrial gases business model. The sector, accounting for over 40% of the combined market capitalization of U.S. and European quoted chemical sectors, is seen as almost a distinct sector, with industrial gases demonstrating consistent share price outperformance over an extended period.
In the realm of cyclical chemical companies, Bernstein favors BASF, also rated ’Outperform’. The analysts are optimistic about the potential for BASF’s restructuring to unlock value, particularly under the direction of a new CEO who is committed to reshaping the company. Despite the expectation of a guidance revision, Bernstein sees significant earnings support for BASF, which is currently trading at valuations near the low end of its historic range.
The diversified coatings majors have also caught Bernstein’s attention, with both AkzoNobel and PPG (WA:IBSP) receiving ’Outperform’ ratings. Although these companies have lost their dependability factor due to missed expectations, the analysts anticipate stronger businesses emerging from significant restructuring efforts. PPG, in particular, is preferred for its stronger fundamental profitability and cash flow, which is expected to lead to forward EBIT margins comparable to the S&P 500 average.
In summary, Bernstein reiterates a strong preference for industrial gas majors like Linde, Air Liquide, and Air Products (NYSE:APD), all rated ’Outperform’, in the current challenging market environment. For cyclical chemicals, BASF stands out as a top pick, and in the diversified coatings sector, PPG is favored over AkzoNobel due to its positive restructuring and potential for improved performance.
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