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Eastman Chemical Up 35% in a Year: What's Behind the Rally?

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Shares of Eastman Chemical Company EMN have rallied 35.1% over a year, outperforming the industry’s gain of roughly 8%.  

The chemical maker has a market cap of roughly $15.2 billion and average volume of shares traded in the last three months is around 1,363.4K. The company has an expected long-term earnings per share growth rate of 8.9%.

Let’s take a look into the factors that are driving this Zacks Rank #2 (Buy) stock.

Driving Factors

Forecast-topping fourth-quarter 2017 earnings performance and upbeat 2018 view are contributing to the rally in Eastman Chemical’s shares. It should also gain from synergies of strategic acquisitions, cost-cutting and productivity initiatives, as well as efforts to reduce debt.

Eastman Chemical recorded a five-fold year-over-year rise in its profits aided by strong growth of high-margin products in its specialty businesses. Adjusted earnings of $1.62 per share trounced the Zacks Consensus Estimate of $1.06. In fact, the company beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of around 17.7%.

The company expects to drive growth in 2018 on the back of growth investments, innovation and high margin products. It also expects modestly lower tax rate to support earnings growth. Eastman Chemical projects adjusted earnings per share growth in 2018 to be 8-12% year over year.

Eastman Chemical’s focus on productivity and cost-cutting actions is helping it to offset raw material cost inflation and other cost headwinds. It expects to deliver $100 million of cost savings in 2018 under its cost-reduction program, and its cost-reduction actions are expected to contribute to its earnings per share in 2018.

The company should also gain from its strategic acquisitions, especially Taminco Corporation. The buyout has strengthened the company’s foothold in attractive niche end-markets including food, feed and agriculture where it has a strong presence. The acquisition has also provided attractive cost and revenue synergy opportunities.

Moreover, Eastman Chemical is committed to reducing debt and boosting shareholder returns leveraging strong free cash flows. Last year, it repaid $350 million of debt. The company has also hiked quarterly dividend for the eighth consecutive year, returning more than $646 million to shareholders during 2017, leveraging healthy free cash flows. It expects to deliver strong earnings growth and generate solid free cash flow of more than $1.1 billion in 2018.

Eastman Chemical Company Price and Consensus

Eastman Chemical Company Price and Consensus | Eastman Chemical Company Quote

Other Stocks to Consider

Some other stocks worth considering in the basic materials space are ArcelorMittal MT, Daqo New Energy Corp. DQ and CF Industries Holdings, Inc. CF each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ArcelorMittal has an expected long-term earnings growth rate of 13.4%. Its shares have soared 45.1% over a year.

Daqo New Energy has an expected long-term earnings growth rate of 7%. Its shares have rallied a whopping 220% over a year.

CF Industries has an expected long-term earnings growth rate of 6%. Its shares have gained 30.2% over a year.

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