Eastman Chemical Co (EMN)'s True Worth: A Comprehensive Analysis of Its Market Value
The stock of Eastman Chemical Co (NYSE:EMN) experienced a daily loss of 4.77%, and a 3-month gain of 0.55%. Its Earnings Per Share (EPS) stands at 5.86. With these figures in mind, the question arises: Is the stock modestly undervalued? This article aims to provide a comprehensive analysis of Eastman Chemical Co's valuation. Read on to gain valuable insights into the company's financial health and future prospects.
Company Introduction
Established in 1920 to produce chemicals for Eastman Kodak, Eastman Chemical Co has evolved into a global specialty chemicals company with manufacturing sites around the world. The company generates the majority of its sales outside of the United States, with a strong presence in Asian markets. Over the years, Eastman has sold noncore businesses, choosing to focus on higher-margin specialty product offerings. With a current stock price of $81.86 per share and a GF Value of $110.44, Eastman Chemical Co appears to be modestly undervalued.
Understanding GF Value
The GF Value is a unique measure that calculates the intrinsic value of a stock based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Eastman Chemical Co's stock shows signs of being modestly undervalued according to the GF Value. The stock's fair value is estimated based on historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. At its current price of $81.86 per share, Eastman Chemical Co has a market cap of $9.70 billion, indicating that the stock is modestly undervalued.
As Eastman Chemical Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are excellent indicators of its financial strength. Eastman Chemical Co has a cash-to-debt ratio of 0.08, ranking worse than 90.44% of 1475 companies in the Chemicals industry. The overall financial strength of Eastman Chemical Co is rated 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially if they have demonstrated consistent profitability over the long term. Companies with high profit margins typically offer better performance potential than those with low profit margins. Eastman Chemical Co has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $9.80 billion and Earnings Per Share (EPS) of $5.86. Its operating margin of 10.78% is better than 68.45% of 1474 companies in the Chemicals industry. Overall, GuruFocus ranks Eastman Chemical Co's profitability as strong.
Growth is a crucial factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Eastman Chemical Co is 8.2%, ranking worse than 53.76% of 1421 companies in the Chemicals industry. The 3-year average EBITDA growth rate is 1.6%, ranking worse than 67.15% of 1312 companies in the Chemicals industry.
ROIC vs WACC
One can evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Eastman Chemical Co's ROIC was 7.76 while its WACC came in at 8.73.
Conclusion
In summary, the stock of Eastman Chemical Co (NYSE:EMN) shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 67.15% of 1312 companies in the Chemicals industry. To learn more about Eastman Chemical Co stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
