Wells Fargo upgrades Celanese on better earnings prospect

Wells Fargo upgraded Celanese to Overweight with a price target of $66, citing potential EPS improvement from cost savings and reduced maintenance, while downgrading near-term earnings forecasts for Dow and LyondellBasell due to continued weakness in commodity chemicals like polyethylene. Despite the downgrades, Wells Fargo maintained Overweight ratings on Dow and LyondellBasell, noting low valuations and potential benefits from rising oil prices and easing trade headwinds, though realizing price hikes may be difficult without tariff policy clarity.

Analysis

Wells Fargo has upgraded Celanese (CE) to Overweight, increasing its price target to $66 from $45, based on anticipated sequential earnings per share improvement driven by cost-saving initiatives and reduced maintenance activity. This upgrade comes despite Celanese's stock having declined approximately 70% from its April 2024 high, now trading at a discount to its mid-cycle valuation, and with Wells Fargo's outlook assuming no near-term demand improvement. Conversely, Wells Fargo lowered near-term earnings forecasts for Dow Inc. (DOW) and LyondellBasell Industries (LYB) due to persistent weakness in commodity chemical markets, particularly polyethylene and chlor-alkali, which are under pressure from tariffs and soft demand; a weaker-than-expected April for polyethylene specifically prompted these estimate cuts. Despite these forecast reductions and challenges in realizing announced June/July price hikes without tariff policy clarity, Wells Fargo maintained Overweight ratings on both Dow and LyondellBasell, citing their low valuations, sensitivity to rising oil prices—which have increased since June 12—and potential for pricing momentum should trade headwinds subside. The broader commodity chemical sector may see an inflection point in the second half of the year, with higher oil prices generally supporting chemical pricing. Other segments face mixed conditions: specialty chemicals exposed to construction and automotive sectors continue to experience low volumes, consumer market demand remains soft amid macroeconomic uncertainty, while agricultural chemicals show a more positive outlook due to strong seasonal demand, increased corn acreage, and firm fertilizer prices driven by supply constraints.

Key Decisions for Investors

• Investors may find Celanese (CE) attractive given its discounted valuation and potential for earnings improvement through cost savings, despite the current lack of demand recovery.
• For Dow (DOW) and LyondellBasell (LYB), monitor evolving tariff policies and oil price movements, as these factors are critical for realizing price increases and could offer upside despite near-term earnings pressure.
• Consider sector-specific dynamics, as agricultural chemicals currently present a more robust outlook due to strong seasonal demand and supply constraints, contrasting with ongoing challenges in commodity and certain specialty chemical segments.