Better Chemistry At Union Carbide

Union Carbide is on the comeback trail. Its intense cost-cutting measures are bearing fruit--ahead of expectations. As a result, big investors, including Fidelity Management and billionaire financier George Soros, have been accumulating shares. The stock, which was trading at 16 in early 1993, is now at 28.

"The company is one of the best plays in the economy's recovery," says Paul Raman, an analyst at the New York investment bank S.G. Warburg. He thinks the stock is still underpriced and is likely to climb to the high 30s in a year. True, sales volume has shrunk from 1980 levels, when Carbide was a fairly diversified conglomerate with 20 important businesses. After the 1985 explosion in Bhopal, India, followed by a takeover attempt by specialty chemical maker GAF, Carbide started to slide. The company incurred a huge amount of debt and was forced to sell off assets.

Demand for Carbide's current output, especially fabricated plastic products, specialty polymers, and industrial chemicals, has been strong, notes Raman. Its polyethylene is widely used in packaging, and Raman notes that the rise in polyethylene prices, in particular, is a big boost to earnings. So Raman has raised his 1994 earnings estimate to $1.50 a share from $1.40, vs. 1993's $1.05. For 1995, Raman sees earnings of at least $2.

Before it's here, it's on the Bloomberg Terminal.