2015 All-America Research Team: Chemicals, No. 1: Jeffrey Zekauskas

Jeffrey Zekauskas

J.P. Morgan

First-Place Appearances: 5

Total Appearances: 14

Analyst Debut: 2001

For a fifth consecutive year,Jeffrey Zekauskasheadlines this roster. One admirer favors the J.P. Morgan analyst because he “offers a unique, thought-provoking perspective and has a deep bench of experienced associates.” In the opinion of another client, “what separates Jeff from his competition is that he is excellent at picking winning stocks.” Zekauskas, 61, reports on 36 U.S. chemicals companies. Among the recent additions to his coverage universe is Wilmington, Delaware–based Chemours Co., which produces titanium dioxide and such refrigerants and industrial fluoropolymers as Freon and Teflon. In June — just before industry giant E.I. du Pont de Nemours and Co. completed the spin-off of its former Performance Chemicals unit — Chemours’s shares began trading on a when-issued basis, and the analyst launched coverage with an underweight rating. In addition to deeming them fully valued, he forecast that the manufacturer’s highly leveraged balance sheet would lead to a reduction of the $100 million quarterly dividend planned before the demerger. As predicted, in early August management announced that the payout from the fourth quarter and beyond would be considerably less than the $100 million distributed in the third quarter. At that point the stock was down 34.9 percent, at $11.10, and lagged its peers by 26.3 percentage points, prompting him to raise his rating to neutral. Chemours was reducing costs in an environment of falling product prices, he also noted. Sure enough, early in September, the company slashed its quarterly dividend from the third quarter’s $0.55 per share to $0.03. At mid-month its shares closed at $8.76, down 21.1 percent against the sector’s 9.5 percent loss. Zekauskas is considerably more upbeat on the prospects for Dow Chemical Co., the U.S.’s largest chemicals maker. Curtailment of expansionary spending and capacity additions at home and in Saudi Arabia, on completion of two major building projects, will boost free cash flow in 2018 and beyond, he predicts. Moreover, the long-term value of the stock is lower than justified, the researcher advises. He assigns it a $56 target, which implies a 29.3 percent premium to the price in mid-September.