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Will Eastman Chemical (EMN) Keep the Earnings Streak Alive?

Zacks Equity Research

Eastman Chemical (EMN) is set to release its second-quarter 2014 results after the close on Jul 28.  
In the last quarter, the chemical maker delivered a 0.62% positive earnings surprise. The company, however, saw lower profit in the quarter, impacted by higher impairment and restructuring charges.

Eastman Chemical has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of 5.21%. Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

Eastman Chemical, in its first quarter call, said that it expects higher sales in the remainder of 2014. The company expects to gain from specific actions that it has taken up to increase earnings as well as balanced deployment of strong cash flow. It also sees higher demand in the coatings and tires markets.

Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses remains its strength. It also benefits from business restructuring and cost-cutting measures.
Eastman Chemical should continue to benefit from synergies related to Solutia acquisition in the June quarter. The acquisition has boosted its foothold in the emerging markets, especially in Asia Pacific.

However, Eastman Chemical remains exposed to volatility in raw material costs. Higher energy and raw material costs, particularly for propane, are expected to weigh on the company’s earnings in the second quarter. Moreover, weak demand for adhesives resins in specific markets and lower pricing due to competitive pressure may continue to affect sales in the company’s Adhesives and Plasticizers segment.

Earnings Whispers
Our proven model does not conclusively show that Eastman Chemical is likely to beat the Zacks Consensus Estimate in the second 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: ESP for Eastman Chemical is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.84.
Zacks Rank #3 (Hold): Eastman Chemical’s Zacks Rank #3 when combined with an ESP of 0.00% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other stocks in the basic materials sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Agrium Inc. (AGU) has earnings ESP of +1.95% and retains a Zacks Rank #3 (Hold).

CF Industries Holdings, Inc. (CF) has earnings ESP of +1.70% and sports a Zacks Rank #3 (Hold).

Albemarle Corporation (ALB) has earnings ESP of +0.92% and retains a Zacks Rank #3 (Hold).

Read the Full Research Report on EMN
Read the Full Research Report on CF
Read the Full Research Report on AGU
Read the Full Research Report on ALB

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