Morgan Stanley has highlighted two names as its top selections within European chemicals, singling out firms it views as better insulated from the sector's broader demand weakness. The bank emphasized defensive attributes and exposure to specialty segments for each of its picks, arguing these traits should support earnings stability while industrial chemicals face subdued demand.
Why these picks
In its analysis, Morgan Stanley underlined that both companies derive a larger share of earnings from specialty applications and recurring end-markets rather than cyclical industrial chemicals. The bank pointed to pricing discipline, portfolio optimization and limited near-term downside to consensus forecasts as reasons it favours these names.
International Flavors & Fragrances (IFF)
Morgan Stanley selected IFF largely for its orientation toward consumer ingredients rather than more cyclical industrial chemical products. The bank expects IFF's earnings to show resilience even as overall demand remains subdued, driven by several factors it highlighted: disciplined pricing, active portfolio optimization and high exposure to recurring end-markets such as food, beverage and personal care.
Analysts at the bank note limited downside risk to consensus forecasts for IFF, observing that volumes tied to consumer ingredients are holding up better than those in industrial chemicals. Margins are also expected to benefit from ongoing cost management initiatives. Morgan Stanley additionally cited IFF's relatively attractive valuation following a sector-wide de-rating, suggesting investors gain a combination of defensive characteristics and operational leverage should demand conditions improve.
On the results front, IFF reported third-quarter 2025 revenue of $2.69 billion and earnings per share of $1.05, figures Morgan Stanley referenced in assessing the company's current positioning.
Syensqo
The second name Morgan Stanley highlighted, Syensqo, was recommended on the basis of its focus on higher-quality specialty polymers and materials characterized by strong barriers to entry. The bank identified return on invested capital as a central valuation driver and judged Syensqo favourably versus peers on this metric.
Despite weak industrial demand, Morgan Stanley expects Syensqo to deliver relatively stable earnings because of its exposure to structurally growing applications and reduced competitive pressure from Chinese manufacturers in advanced specialties. The bank also observed that supply growth in key chains is set to abate, a dynamic seen as supportive of margins. Overall, Syensqo's portfolio mix was described as offering leverage to a recovery without excessive cyclicality.
Syensqo's third-quarter 2025 results showed net sales of 1.52 billion, a slight year-on-year decrease, while the company achieved an EBITDA margin above 23 percent, data cited by Morgan Stanley in its assessment.
Investment implications
Morgan Stanley's recommendations reflect a preference for companies with pricing power, recurring revenue exposure and portfolios tilted toward specialties and consumer end-markets. These traits are presented as buffers against the sector-wide softness that has impacted industrial chemicals.
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