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Eastman Chemical (EMN): Another Earnings Beat in the Cards?

Zacks Equity Research

Eastman Chemical EMN is set to release its fourth-quarter 2015 results after the bell on Jan 28.

In the last quarter, the chemical maker delivered a 1.10% positive earnings surprise. Its profits jumped on contributions of acquisitions, cost-saving actions and higher volumes from its specialty businesses.

Eastman Chemical has beaten the Zacks Consensus Estimate in all the trailing 4 quarters with an average beat of 8.39%. Let's see how things are shaping up for this announcement.

Factors to Watch For

Eastman Chemical, in its third quarter call, said that it is well placed for sixth straight year of earnings growth in 2015. But the company noted that it is facing headwinds from a sluggish global economic environment, a stronger dollar and lower olefin prices.

Eastman Chemical faces currency headwinds given the strengthening of the U.S. dollar vis-à-vis a basket of currencies, especially euro. Unfavorable currency translation weighed on its top line in the third quarter and is expected to continue to affect results in the December quarter.

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 may impact olefin margins in the fourth quarter, thereby affecting profitability in the specialty fluids and intermediates division.

Nevertheless, Eastman Chemical should continue to gain from synergies of acquisitions and cost-cutting actions. The acquisition of specialty chemical company Taminco Corporation is expected to be accretive to its earnings for 2015. Moreover, continued momentum in the company’s specialty businesses is expected support earnings in the December quarter.

Earnings Whispers

Our proven model does not conclusively show that Eastman Chemical is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Eastman Chemical is +6.45%.  This is because the Most Accurate Estimate stands at $1.65, while the Zacks Consensus Estimate is pegged at $1.55.

Zacks Rank: Eastman Chemical’s Zacks Rank #4 (Sell), when combined with a positive ESP, makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look
 
Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
 
Orion Engineered Carbons SA OEC has an Earnings ESP of +18.52% and a Zacks Rank #3 (Hold).

Agrium Inc. AGU has an Earnings ESP of +4.86% and a Zacks Rank #3.

LyondellBasell Industries N.V. LYB has an Earnings ESP of +0.47% and a Zacks Rank #3.

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EASTMAN CHEM CO (EMN): Free Stock Analysis Report
 
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AGRIUM INC (AGU): Free Stock Analysis Report
 
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