Celanese Corporation CE is poised to benefit from its inorganic growth actions, strength of its commercial models and growth investments in organic projects amid a challenging environment.
Shares of this leading chemical and specialty materials maker, which currently carries a Zacks Rank #3 (Hold), have gained 9.6% year to date compared with the 13% rise of its industry.
What’s Going 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. Its bottom line is expected to be aided by productivity actions and operational improvement.
The company’s Engineered Materials (EM) unit is poised for growth on the back of acquisitions, new business wins, growth in Asia and significant project commercialization. The company commercialized 1,075 projects during the first quarter, up 45% year over year.
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 EM segment.
The buyout 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 by broadening its capability to serve nylon and other engineered materials customers with high product quality and service level. Moreover, the acquisition further expands the company’s global manufacturing footprint and offers customers with wide range of polymer products.
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. Celanese continues to invest in its businesses and further expand its capability to boost growth and create value for shareholders.
Moreover, the company remains committed toward rewarding its shareholders with dividends and share buybacks leveraging solid free cash flow generation. Celanese generated operating cash flow of $307 million and free cash flow of $224 million during the first quarter. The company returned $270 million to shareholders through dividends and share repurchases during the quarter.
The company, in April 2019, also bumped up its quarterly cash dividend by 15% to 62 cents per share from the prior payout of 54 cents. This marked the tenth straight year of dividend increases. The company’s board also approved a new $1.5 billion share repurchase authorization.
A Few Concerns
Celanese is exposed to a challenging business environment. It witnessed a slowdown in demand in the first quarter. Lower global demand hurt volumes and pricing in its Acetyl Chain unit in the quarter. The company does not expect a significant improvement in demand in the second quarter.
Celanese also faces volume and pricing pressure in its Acetate Tow segment. Low utilization rates across the tow industry are affecting volumes of acetate tow. Lower tow prices are, in turn, pressuring Acetate Tow earnings. Demand and utilization rates remain subdued across the tow industry. As such, margins for the Acetate Tow unit are expected to remain under pressure.
The company is also exposed to margin pressure from raw material cost inflation. It is taking pricing actions amid an inflationary environment.
Celanese Corporation Price and Consensus
Celanese Corporation price-consensus-chart | Celanese Corporation Quote
Stocks to Consider
Stocks worth considering in the basic materials space include Materion Corporation MTRN, Air Products and Chemicals, Inc. APD and Innospec Inc. IOSP.
Materion has an expected earnings growth rate of 23.1% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 17% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Air Products has an expected earnings growth rate of 10.3% for the current fiscal year and carries a Zacks Rank #2 (Buy). Its shares have gained around 24% in the past year.
Innospec has an expected earnings growth rate of 6.6% for the current year and carries a Zacks Rank #2. Its shares are up roughly 6% in the past year.
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