Celanese Corporation CE should benefit from its inorganic growth actions, productivity measures and growth investments in organic projects amid a challenging business environment.
Shares of this leading chemical and specialty materials maker, which currently carries a Zacks Rank #3 (Hold), have gained 24.2% year to date compared with the 13.8% rise of its industry.
What’s Working in CE’s Favor?
Celanese’s strategic measures including cost savings through productivity initiatives, price increase actions and efficiency enhancement are expected to support its earnings in 2019. Celanese is committed to execute its productivity programs that include implementation of a number of cost reduction capital projects. It remains focused on investing in high-return organic projects.
Celanese also continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies. The acquisitions of SO.F.TER., Nilit and Omni Plastics are expected to significantly contribute to earnings expansion in the company's Engineered Materials (EM) segment.
The acquisition of Next Polymers also complements Celanese’s growing business in India and strengthens its position as a leader in India’s engineering thermoplastics (ETP) market. The buyout further expands the company’s global manufacturing footprint and offers customers with wide range of polymer products.
The company’s EM unit is also poised to gain from new business wins and significant project commercialization. The company commercialized 1,177 projects during the second quarter. It is on track to commercialize more than 4,000 projects in 2019.
The company is also implementing several process improvement projects across a global network of acetyls manufacturing plants. All these positions its Acetyl Chain unit for solid growth.
Moreover, Celanese remains committed toward rewarding its shareholders with dividends and share buybacks leveraging solid free cash flow generation. The company generated operating cash flow of $424 million and free cash flow of $356 million during the second quarter. It returned $378 million to shareholders through dividends and share repurchases during the quarter.
A Few Worries
Celanese is exposed to a challenging business environment. The company faces a sluggish demand environment, partly due to weakness across Europe and Asia. It witnessed a slowdown in demand in the second quarter across several end markets, especially automotive and electronics. Lower demand hurt sales in its EM and Acetyl Chain units in the quarter. The challenging conditions are likely to continue in the third quarter.
Celanese also faces some pressure in its Acetate Tow segment. Low utilization rates across the tow industry are affecting volumes of acetate tow. Demand remains subdued in the tow industry.
Celanese Corporation Price and Consensus
Celanese Corporation price-consensus-chart | Celanese Corporation Quote
Stocks Worth a Look
Better-ranked stocks worth considering in the basic materials space include Kinross Gold Corporation KGC, NewMarket Corporation NEU and SSR Mining Inc. SSRM.
Kinross has projected earnings growth rate of 150% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have surged around 66% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.
NewMarket has an expected earnings growth rate of 16.2% for the current year and carries Zacks Rank #1. Its shares have gained around 19% in the past year.
SSR Mining has an estimated earnings growth rate of 165.2% for the current year and carries a Zacks Rank #2 (Buy). Its shares have shot up roughly 88% in the past year.
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