Goldman Sachs Turns to Favor the Cyclical Chemical Sector: Ratings Adjustments for Seven Companies

Investing.com - Goldman Sachs has adjusted its rating stance on the European chemical sector, shifting to a more optimistic view of cyclical development, and announced rating changes for seven companies in the sector, citing early signs of industrial momentum improvement despite ongoing uncertainties in company comments.

In a report released on Tuesday, the broker upgraded Arkema, Evonik, and Symrise to “Buy,” upgraded Lanxess to “Neutral,” and downgraded Umicore to “Neutral,” while downgrading Givaudan and Clariant to “Sell.”

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The adjustment is driven by macroeconomic indicators such as U.S. manufacturing activity, industrial production, and chemical rail transport volumes showing signs of stability, along with accelerated capacity closures in Europe.

The affected companies are Arkema, Evonik, Symrise, Lanxess, Umicore, Givaudan, and Clariant.

As of 04:58 a.m. Eastern Time (17:58 Beijing Time), shares of Arkema, Evonik, Symrise, and Lanxess rose by 5.3% to 9.4%.

Goldman Sachs describes these rating adjustments as a turning point after a prolonged downturn, noting expectations that profit margins will bottom out in fiscal 2025, with management taking actions including restructuring and capacity consolidation, along with initial signs of demand improvement.

In January, U.S. manufacturing PMI rose to 52.6, supported by increases in new orders and production, while U.S. chemical railcar loadings exceeded seasonal norms.

The broker also emphasized that Germany’s fiscal infrastructure spending will increase from €14 billion in 2025 to €31 billion in 2026, while China has canceled some chemical export rebates and relaxed real estate policies.

According to industry data cited in the report, European chemical production capacity closures are expected to reach about 17 million tons per year by 2025, bringing the total capacity shut since 2022 to approximately 9%.

Goldman Sachs states that diversified chemical companies now present a more favorable risk-reward profile, noting that its 2026 adjusted EBITDA estimates are broadly in line with market consensus, with 2027 estimates exceeding consensus by 2.8%.

The broker expects fiscal 2025 performance to be a clearing event, noting that valuation multiples for diversified chemicals have historically led earnings revisions by 4 to 8 months.

Goldman Sachs estimates that the market consensus for forward 12-month adjusted EBITDA may bottom out in the first quarter of 2026 when earnings are released. Across the sector, Goldman Sachs now projects an average 12-month target price upside of 13%, with diversified chemicals showing an 18% potential increase, compared to 8% for consumer raw materials and 11% for paints, gases, and specialty chemicals.

In contrast, the broker remains more cautious on consumer raw materials, expecting negative sales and pricing pressures to persist, with a clear inflection point not expected until Q3 2026.

Goldman Sachs’s adjusted EBITDA forecasts for raw materials are 2.5% below the 2026 market consensus and 3.6% below the 2027 consensus.

The downgrade of Givaudan to “Sell” reflects the company’s described mid-term margin downside risks due to increased capital intensity and product mix dilution, while Clariant’s downgrade relates to its cyclical exposure and limited near-term catalysts.

Umicore was downgraded to “Neutral” because Goldman Sachs states that most of the revaluation of battery materials has already occurred, though execution risks remain.

The broker notes that the European chemical sector has lagged broader equity markets, with the SX4P index underperforming the SXXP by 14% in 2024 and 23% in 2025, but points out that based on enterprise value to EBITDA multiples, some companies are trading near their lowest levels in twenty years.

Although structural challenges such as overcapacity, Chinese export pressures, and competitiveness remain, Goldman Sachs suggests that accelerated capacity rationalization and easing energy costs starting in 2027 could support medium-term profitability.

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