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Can 1Q18 Earnings Help LyondellBasell Retain Premium over Peers?

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Apr. 25 2018, Updated 10:30 a.m. ET

LyondellBasell’s one-year forward PE

As of April 20, 2018, LyondellBasell’s one-year forward PE (price-to-earnings ratio) stands at 10.2x. In comparison, peer Eastman Chemical (EMN) has a one-year forward PE of 12.4x. 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 when calculating their valuations.

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LyondellBasell’s valuations

For the next four quarters, LYB’s adjusted earnings per share are projected at $10.53, representing growth of 2.9%. However, the positive developments could spring a surprise. LYB is expected to close the A. Schulman (SHLM) acquisition in the second quarter of 2018. LYB has received US antitrust approval for the acquisition. The synergies from the acquisition are expected to be at $150 million within one year. Once the deal is complete, LYB’s earnings will get a boost. Also, the joint venture with SUEZ to acquire Quality Circular Polymers is also jointly operated now. Finally, LYB’s share buybacks will likely continue to add more value to the remaining shareholders.

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. With EMN’s better growth projections, EMN is expected to trade at a premium compared 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 4.0% and 4.3%, respectively, as of April 20.

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