Merrill Lynch downgraded select chemical companies including DuPont (DD ).
Merrill cut DuPont, PPG Industries (PPG ), and Lyondell Chemical (LYO ) to near-term neutral from buy. Merrill also downgraded Rohm & Haas (ROH ) to near-term reduce from neutral.
Analyst Donald Carson says these stocks have already priced in an improved U.S. and global economic outlook. While first quarter EPS is shaping up ahead of low estimates (except for Lyondell), surging energy and higher raw material costs increase the likelihood that EPS will disappoint later in 2002. Carson says the macro outlook presents a Catch-22 for most major chemical stocks. Rising energy prices and weak corporate profits could delay or weaken an economic recovery, while the continuing stronger-than-expected recovery could lead to rising interest rates and investors' rotation to growth sectors.