Zacks Industry Outlook Highlights Element Solutions, H.B. Fuller Company, Quaker Chemical and Minerals Technologies

Industry: Specialty Chemicals

Link: https://www.zacks.com/commentary/2961615/4-chemical-specialty-stocks-to-gain-from-demand-rebound

The Zacks Chemicals Specialty industry is expected to benefit from a demand recovery in key markets and the end of customer inventory de-stocking to a large extent. Improved demand in automotive and a rebound in construction end markets bode well.

Industry players, such as Element Solutions Inc, H.B. Fuller Company, Quaker Chemical Corp. and Minerals Technologies Inc. are banking on strategic measures, including operating cost reductions, to tide over a still-challenging environment.

About the Industry

The Zacks Chemicals Specialty industry consists of manufacturers of specialty chemical products for a host of end-use markets such as textile, paper, automotive, electronics, personal care, energy, construction, food & beverages and agriculture. These chemicals (including catalysts, surfactants, specialty polymers, coating additives, pesticides and oilfield chemicals) are used based on their performance and have a specific purpose. 

Specialty chemicals can be single molecules or a combination of molecules referred to as formulations, and they provide a vast range of effects upon which various industries rely. Their compositions significantly influence the performance of the finished products. Specialty chemicals have applications in the manufacturing process of a vast range of products, including paints and coatings, cosmetics, petroleum products, inks and plastics.

What's Shaping the Future of the Chemical Specialty Industry?

Improved End-Market Demand Augurs Well: Companies in the chemical specialty space are expected to gain from a recovery in demand across several major industries, including automotive and construction. The automotive market is likely to rebound this year, driven by the accelerating adoption of electric vehicles as governments globally push for carbon neutrality. Improving affordability, strong demand for hybrids and promotional incentives should drive new vehicle sales. 

Moreover, a recovery in demand in building & construction, consumer durables, agriculture and personal care bodes well for the specialty chemical companies. On a positive note, the protracted customer inventory destocking in these key markets has ended, leading to low inventory levels. Improved end-market demand is likely to support volumes of specialty chemical companies over the near term.

Strategic Actions to Aid Results: The companies in this space are executing a raft of self-help measures, including cost-cutting and productivity improvement, expansion into high-growth markets, restructuring, operational efficiency improvement, and actions to strengthen the balance sheet and boost cash flows. The industry participants are aggressively implementing measures to cut costs. These actions are likely to help companies sail through the macroeconomic challenges.

Cost Pressure Still a Worry: Specialty chemical makers are facing headwinds from raw-material and energy-cost inflation and supply-chain and freight-transportation disruptions. Some companies are exposed to challenges from elevated logistics and labor costs. Tariffs have led to increased costs for raw materials, resulting in higher production expenses for the industry players. Also, the Middle East conflict and the blockade of the Strait of Hormuz have led to significant supply disruptions and feedstock cost pressure. The impacts of inflationary pressures are expected to continue over the short term and weigh on the margins of chemical specialty companies.

Zacks Industry Rank Indicates Upbeat Prospects

The Zacks Chemicals Specialty industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #86, which places it in the top 35% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a bright near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms Sector & S&P 500

The Zacks Chemicals Specialty industry has underperformed the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.

The industry has gained 2.4% over this period compared with the S&P 500’s rise of 18.4% and the broader sector’s increase of 22.1%.

Industry's Current Valuation

On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing chemical stocks, the industry is currently trading at 21.44X, above the S&P 500’s 20.22X and the sector’s 14.06X.

Over the past five years, the industry has traded as high as 25.18X, as low as 15.16X, with a median of 22.5X.

4 Chemical Specialty Stocks to Keep a Close Eye On

Element Solutions: Florida-based Element Solutions is a leading specialty chemicals provider, offering innovative and differentiated solutions to its customers across a vast spectrum of industries. ESI is poised for growth, driven by strong execution and strategic positioning in the electronics sector. The company is benefiting from strength in the electronics market. ESI is seeing strong organic growth in its Electronics segment. The Micromax acquisition has strengthened its position to build an industry-leading Electronics portfolio. 

High-value end markets are contributing to a favorable product mix, while the ongoing pricing and productivity initiatives are boosting margins. The recently announced proposed combination with Solstice Advanced Materials will create a leading advanced materials platform with a stronger presence in high-growth end markets, including semiconductors, electronics, data centers and industrial technologies.

Element Solutions has an expected earnings growth rate of 20.1% for 2026. The Zacks Consensus Estimate for ESI’s 2026 earnings has moved 0.6% upward over the last 30 days. ESI surpassed the Zacks Consensus Estimate in each of the trailing four quarters at an average of roughly 6.3%. ESI currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

H.B. Fuller: Based in Minnesota, H.B. Fuller manufactures and markets adhesives, sealants, coatings and other specialty chemical products. H.B. Fuller offers a clearer path to steadier margins as it tilts the mix toward regulated medical, pushes disciplined pricing and benefits from restructuring. Broad growth across aerospace, electronics and infrastructure shows multiple engines can offset weaker consumer and automotive exposure. Cash generation is improving, supporting buybacks and future deleveraging. The proposed acquisition of Advanced Medical Solutions is a strategic fit, as it accelerates H.B. Fuller's shift toward higher-growth, higher-margin, procedure-driven end markets. 

H.B. Fuller currently carries a Zacks Rank #2. It has expected earnings growth of 14.9% for the current fiscal year. The consensus estimate for FUL’s current fiscal-year earnings has moved up 1.9% over the last 30 days.

Quaker Chemical: Based in Pennsylvania, Quaker Chemical (doing business as Quaker Houghton) is a global developer, producer, and marketer of industrial process fluids and related specialty chemicals. The company continues to demonstrate the ability to outpace underlying markets through new business wins, with momentum in Asia/Pacific and improving traction in the Americas as prior disruptions ease. KWR is leaning on self-help actions, including a global transformation program to simplify operations and reduce structural costs, while integration and cross-selling broaden the portfolio. Acquisitions remain a steady contributor to consolidated sales growth, with Dipsol a key driver in Asia/Pacific.

Quaker Chemical has expected earnings growth of 2% for the current year. The Zacks Consensus Estimate for KWR’s current-year earnings has been stable over the last 30 days. Quaker Chemical, carrying a Zacks Rank #2, has an expected long-term earnings per share growth rate of 18.2%.  

Minerals Technologies: New York-based Minerals Technologies is a technology-driven specialty minerals company that develops, produces, and markets minerals, mineral-based products, related systems and services. MTX’s growth investments are contributing to revenues across cat litter, renewable fuel purification, precipitated calcium carbonate satellites and the FLUORO-SORB remediation product, which broadens the company's drivers beyond cyclical industrial demand. Environmental and infrastructure markets add a higher-growth layer, helped by drilling, remediation, water treatment and regulatory-driven opportunities. Financial flexibility is supportive, with the balance sheet able to fund projects while absorbing cost volatility. 

Minerals Technologies currently carries a Zacks Rank #2. It has expected earnings growth of 14.9% for the current year. The consensus estimate for MTX’s current-year earnings has moved up 0.2% over the last 30 days. MTX surpassed the Zacks Consensus Estimate in three of the trailing four quarters. In this timeframe, it delivered an earnings surprise of 5.9%, on average.  

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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