White Falcon Capital: Huntsman ($HUN) Investment Case
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In their Q4 & FY 2025 partner letter, White Falcon Capital presents Huntsman Corporation ($HUN) as a contrarian cyclical opportunity within a small housing-linked basket. With residential construction and refinancing activity depressed due to high interest rates, the firm believes Huntsman is positioned to benefit from an eventual macro recovery. While near-term earnings remain pressured by global overcapacity in MDI (methylene diphenyl diisocyanate), White Falcon sees an asymmetric setup heading into 2026–2027.
Business Overview
- Global specialty chemicals company headquartered in The Woodlands, Texas
- Operates more than 60 facilities across 25+ countries
- Approximately 7,000 employees
- Roughly $6 billion in annual revenue (as of Q3 2025)
- Transitioned from diversified chemical conglomerate to focused specialty operator
Huntsman has undergone a multi-decade transformation, divesting lower-quality commodity businesses and sharpening its focus on differentiated specialty chemical segments.
Strategic Transformation
Management follows a disciplined “best-owner” philosophy, evaluating and pruning the portfolio approximately every five years.
Key divestitures over the past two decades include:
- Base Chemicals (2006)
- Titanium Dioxide (2014)
- Chemical Intermediates (2019)
- Textile Effects (2022)
Today, Huntsman is a more streamlined specialty chemicals company with higher-value exposure.
Segment Breakdown
1. Polyurethanes (65% of Revenue)
- Q3 2025 Revenue: $956 million
- Q3 2025 Adjusted EBITDA: $48 million
This is Huntsman’s largest segment and is centered on MDI-based polyurethanes. Through proprietary “splitter technology,” Huntsman converts crude MDI into more than 2,400 tailored formulations.
End markets include:
- Construction insulation
- Automotive components
- Furniture
- Appliances
Approximately 39% of revenue comes from the U.S. and Canada, leaving the company meaningfully exposed to North American residential construction trends.
2. Performance Products (17% of Revenue)
- Q3 2025 Revenue: $246 million
- Q3 2025 Adjusted EBITDA: $29 million
Produces amines and maleic anhydride used in:
- Coatings
- Adhesives
- Fuels and lubricants
- Urethane catalysts
- Oilfield technology
To address structural overcapacity in Europe, Huntsman permanently closed its Moers, Germany facility.
3. Advanced Materials (18% of Revenue)
- Q3 2025 Revenue: $265 million
- Q3 2025 Adjusted EBITDA: $44 million
Focuses on epoxy, acrylic, and polyurethane-based resin systems serving:
- Aerospace
- Transportation
- Industrial markets
- Power generation
A key growth driver is “E-GRADE” purification chemicals used in semiconductor cleaning, where purity and logistics barriers create competitive advantages.
Industry Context: MDI Cyclicality
The global MDI market remains in a supply glut. Major capacity additions include:
- BASF adding ~150kt of U.S. capacity in 2026
- Wanhua Chemical adding ~700kt in China
Chinese overcapacity has depressed global pricing, limiting Huntsman’s ability to raise prices outside specialized formulations.
However, White Falcon believes the setup is improving:
- New capacity should be absorbed by 1H 2026
- Potential European capacity rationalization
- Possible improvement in construction markets
While management does not expect a “V-shaped” recovery, the firm believes the cycle is closer to turning than consensus implies.
Hidden Quality in Non-MDI Businesses
The cyclicality of MDI may be masking the durability of Huntsman’s other divisions.
Aerospace Advantage
Huntsman’s Araldite® brand has a 70-year history and is often embedded in original aircraft design specifications. This creates switching costs and a competitive moat, even against vertically integrated competitors.
Semiconductor Exposure
The electronics business now accounts for a significant portion of earnings. High barriers to entry stem not only from chemical production but also from purity requirements and contamination-free logistics systems.
These structural growth segments are under-earning during the cyclical trough.
Self-Help Initiatives
Management has launched aggressive cost-reduction efforts:
- Targeting $100+ million in cost savings
- $80 million run-rate achieved by Q3 2025
- SG&A realignment and headcount reductions
- Permanent European plant closures
Additionally, Huntsman cut its quarterly dividend from $0.25 to $0.0875, reducing annual dividend outflow from $172 million to $46 million to preserve liquidity and strengthen the balance sheet.
Balance Sheet Overview
- Approximately $1.5 billion in total debt
- 2025 EBITDA: ~$280 million (~5.4x Debt/EBITDA)
- No near-term maturities
- Staggered senior notes due 2029, 2031, and 2034
- ~$1.4 billion in liquidity (cash + revolver)
- Covenant relief secured in 2025
While leverage appears elevated at trough earnings, debt is low-cost and well-structured.
Valuation & Scenario Analysis
2026 Consensus
- Revenue: ~$5.75 billion
- EBITDA: ~$342 million
- Trading at ~11x 2026 EBITDA
Base Case (2027)
If EBITDA reaches ~$450 million and trades at 10x EBITDA:
- Implied valuation: ~$18 per share
- Approximately 50%+ upside from current levels
Bull Case
If normalized EBITDA reaches ~$700 million (helped by cost cuts and cyclical recovery):
- At 10x EBITDA, implied value: $35+ per share
This scenario requires strong macro recovery, declining rates, and tighter global supply-demand dynamics.
Key Drivers for Upside
- U.S. housing recovery
- Interest rate declines
- European capacity closures
- No further major capacity additions
- Operating leverage from cost restructuring
Risks
- Prolonged global MDI oversupply
- Slower housing recovery
- Continued pricing pressure from Chinese exports
- Elevated leverage during earnings trough
- Delayed cyclical recovery
Investment Thesis Summary
White Falcon views Huntsman as a classic cyclical opportunity — buying when earnings, sentiment, and pricing are near trough levels.
The market largely values Huntsman as an MDI commodity producer, potentially overlooking:
- The structural growth of Advanced Materials
- Aerospace and semiconductor exposure
- Cost restructuring benefits
- Significant operating leverage in a recovery
While near-term fundamentals remain weak, the firm believes the downside is limited relative to the upside potential over a two- to three-year horizon.
