Celanese’s (CE) Strategic Actions Should Bear Fruit

On Feb 9, we issued an updated research report on Celanese (CE). While the company’s strategic measures should drive earnings this year, it is exposed to volatility in raw material costs, currency headwinds and certain challenges in its core acetyl business.

Celanese swung to a loss on a reported basis in fourth-quarter 2014 (reported on Jan 22) on lower sales. Adjusted earnings for the quarter topped the Zacks Consensus Estimate while revenues missed. The company expects its business strength to offset the volatility in the macro environment in 2015.

Celanese’s strong presence in emerging markets will enable it to deliver incremental earnings in 2015. Earnings are expected to be driven by company-specific initiatives including innovation of new products and enhancement of efficiencies through productivity.

Celanese remains focused on reducing costs and running its plants more efficiently amid an uncertain operating backdrop. It is aggressively expanding its capacity in the emerging Asian markets. The company’s expansion initiatives in China are expected to support earnings growth. Celanese’s integrated chemical complex in Nanjing, China, serves as a base for expansion in Asia, supporting the region's increasing demand.

Moreover, Celanese continues to generate strong cash flows and remains focused on returning value to its shareholders. The company repurchased 4.3 million shares in 2014 for $250 million. Its cash dividend payments also jumped 73% year over year to $144 million last year.

However, Celanese is exposed to raw material supply issues and cost pressures. The company is still witnessing weak acetyl demand in China and Europe given the sluggish economic conditions. It also faces headwind associated with the expiry of a methanol contract in mid-2015.

Moreover, Celanese faces currency exchange translation headwinds given the weakening of euro vis-à-vis the U.S. dollar. The company’s balance sheet leverage is also relatively high, limiting its financial flexibility.

Other Stocks to Consider

Other companies in the chemical industry worth considering include Innophos Holdings Inc (IPHS), Air Products & Chemicals Inc. (APD) and Olin Corp. (OLN). While Innophos holds a Zacks Rank #1 (Strong Buy), both Air Products and Olin retain a Zacks Rank #2 (Buy).