LyondellBasell’s one-year forward PE
As of March 22, 2018, LyondellBasell’s one-year forward PE (price-to-earnings ratio) stands at 9.9x. In comparison, its peer Eastman Chemical (EMN) has a one-year forward PE of 11.9x.
Forward PE is a measure investors can use to compare two or more companies operating in the same industry to tell which is overvalued and which is undervalued. This valuation method considers the companies’ future estimated earnings at the time of calculating their valuations.
LyondellBasell trades at a discount
LyondellBasell is currently trading at a discount to its peer Eastman Chemical. Analysts expect LYB’s next four quarters of adjusted EPS (earnings per share) to total $10.53, a rise of ~3.1% on a YoY (year-over-year) basis. However, recent positive developments could surprise analysts.
It should be noted that the demand for olefins is growing, and LYB is quickly scaling up its production capacity. To support its efforts, LYB has entered into an agreement to buy Schulman, and the latest developments suggest that it has received approval from US antitrust authorities for the acquisition. The deal is expected to complete in 2Q18 and should boost LYB’s earnings. The beginning of operations at Quality Circular Polymers, which LYB acquired in a joint venture with SUEZ, should also add value.
On the other hand, analysts expect Eastman Chemical’s one-year forward adjusted EPS to rise 11.3% YoY and come in at $8.47. Because its growth rate is higher than LYB’s, EMN is naturally trading at a premium to LYB.
Investors can gain exposure to LyondellBasell by investing in the PowerShares DWA Basic Materials Momentum ETF (PYZ). PYZ invests 3.7% of its portfolio in LyondellBasell. The top holdings of the fund include FMC (FMC) and Chemours (CC), which have weights of 3.3% and 4.0%, respectively, as of March 22, 2018.