Composites and packaging-related plastics companies set for growth, analysts say

As economic conditions improve, composites and packaging-related plastics companies will continue to grow production while passing on higher raw material costs, Wall Street analysts said
.

Fermium Research analyst Frank Mitsch raised his earnings forecast for Avient (formerly PolyOne), a U.
S.
-based composites and specialty chemicals company, on the grounds that the company's second-quarter results are likely to beat estimates
.

"In Specialty Engineered Materials (SEM), we believe the material momentum for outdoor high-performance sports continued in the second quarter, along with further wins in healthcare," Mitsch said in a June 25 research note.
"We expect another quarterly record for SEM, driven by consumers and composites," he said
.

The analyst raised its second-quarter earnings per share (EPS) estimate by $0.
03 to $0.
83; 2021 estimates by $0.
05 to $2.
85; and 2022 estimates by $0.
05 to $3.
15
.
He expects Avient's second-quarter sales to beat the company's forecast of $1.
1 billion to $1.
215 billion
.

maintain profit margins

The analyst pointed out that although plastic resin prices have risen, Avient has been able to offset raw material costs through its own price increases
.

"Avient is very focused on improving pricing to offset rising raw material costs, and that effort has paid off this year," Mitsch said
.

Avient's SEM segment produces composite materials for end markets such as consumer, cable and wire, electrical and electronics, transportation, industrial, healthcare, packaging, building and construction
.

He noted that the company has also reduced the overall risk of hydrocarbon feedstocks by acquiring Clariant’s masterbatch business for $1.
44 billion in July 2020, with PE and PP currently only accounting for 14% of feedstock costs for its specialty business
.

UBS analyst Joshua Spector reiterated his "buy" rating on U.
S.
packaging company Berry Global, citing modest volume growth, deleveraging and low valuations
.

"We believe that Berry's earlier shift to greater investment in organic growth capex is now driving volume growth, and we expect this trend to continue,
" Spector said in a June 24 research note.

The analyst expects organic volume growth of around 1-2% in the medium term, 5% in fiscal 2021 (ending in September), and 0.
5% in fiscal 2022, while the market is expecting a steeper decline
.

UBS analysts expect the cost of plastic resin raw materials to eventually decline
.

"Resin prices have remained elevated for an extended period due to ongoing supply issues and low inventories
.
However, we do not think current resin prices will continue and it is a matter of time before prices drop
.
"

improve sustainability

The company's sustainability efforts should also enhance its resilience
.

"We believe Berry's investments in product redesign, returnable/recyclable resin supply agreements (nearly 10% of sales) and global scale put it ahead of the competition (and possibly even drive growth)," Spector said
.
"

Berry purchased about 3.
2 million tons of plastic resin, of which 55% was PE and 40% was PP, accounting for about 50% of the cost of goods sold
.
He noted that about 75% of customers have a resin price pass-through mechanism that passes on price changes with an average lag of one month
.

In addition, the analyst noted that some contracts allow for immediate change of hands in the event of extreme volatility in raw materials
.