On Nov 27, we issued an updated research report on chemical maker Eastman Chemical EMN.
Eastman Chemical’s profit jumped in third-quarter 2015, helped by contributions of acquisitions, cost-saving actions and higher volumes from its specialty businesses. Adjusted earnings topped the Zacks Consensus Estimate but sales missed expectations.
Eastman Chemical, in its third quarter call, said that it is well placed for sixth straight year of earnings growth in 2015. However, the company noted that it is facing challenges from a sluggish global economic environment, a stronger dollar and lower olefin prices.
Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses remains its strength. It is gaining from synergies of acquisitions, capacity additions and cost-cutting measures. The company remains committed to improve its cost position and boost productivity.
Eastman Chemical should continue to gain from its strategic acquisitions. The acquisition of Solutia represents a significant move in the company’s strategy to boost its foothold in the emerging markets, especially in Asia Pacific.
Moreover, the buyout of specialty chemical company Taminco Corporation has reinforced Eastman Chemical’s foothold in attractive niche end-markets including food, feed and agriculture where Taminco has a strong presence. Eastman Chemical expects the Taminco buy to be accretive to its earnings for 2015 by more than 35 cents per share and for 2016 by over 60 cents per share.
Eastman Chemical should also gain from capacity additions. With the expansion of Eastman Chemical 168 non-phthalate plasticizer capacity by roughly 15%, the company is now able to better serve the growing needs of non-phthalate plasticizers globally. Eastman Chemical remains focused on further growing capacity in this market.
However, Eastman Chemical remains exposed to pricing and competitive pressures. Moreover, uncertainty regarding the timing of a recovery in Europe remains a concern. Eastman Chemical also faces currency headwinds given the strengthening of the U.S. dollar vis-à-vis a basket of currencies, especially euro.
Soft pricing, partly due to competitive pressure, is also affecting the company’s Adhesives and Plasticizers segment. Moreover, lower selling prices of propylene and ethylene are expected to impact olefin margins through 2015, thereby affecting profitability in the specialty fluids and intermediates division.
Eastman Chemical is a Zacks Rank #3 (Hold).
Stocks to Consider
Other companies in the chemical industry worth considering include Celanese Corporation CE, Innospec Inc. IOSP and The Dow Chemical Company DOW. While Celanese and Innospec hold a Zacks Rank #1 (Strong Buy), Dow retains a Zacks Rank #2 (Buy).
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