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Why You Should Keep Eastman Chemical (EMN) in Your Portfolio

Zacks Equity Research

Eastman Chemical Company EMN will gain from its cost management actions, innovation-driven growth model and synergies of acquisitions amid challenges including a difficult business environment.

Shares of the chemical maker are down 6.1% year to date, outperforming the 24.7% decline of its industry.


Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

What’s Favoring the Stock?

Eastman Chemical's cost reduction actions and growth in high-margin innovation products are expected to contribute to its earnings per share in 2019.

Eastman Chemical remains focused on growing new business revenues from innovations. It envisions new business revenues from innovation to increase to more than $400 million this year. The company also remains on track to generate roughly $500 million of new business revenues in 2020.

The company is also focused on productivity and cost-cutting actions in the wake of the challenging environment. It is taking a more aggressive approach to cost management this year to keep its manufacturing costs in control. Eastman Chemical is committed to reduce overall costs by $120 million. The company is also taking actions to raise selling prices of its products amid an inflationary environment.

Eastman Chemical is also gaining from synergies of acquisitions. The buyout of Taminco Corporation has strengthened the company’s foothold in promising niche end-markets including food, feed and agriculture. The acquisition has also provided attractive cost and revenue synergy opportunities.

The company has also purchased the Marlotherm heat transfer fluids manufacturing assets in Germany and associated formulations, intellectual property and customer contracts from South Africa-based integrated energy and chemical company, Sasol.  The buyout allows the company to boost its heat transfer fluids product offerings to customers globally.

The acquisition of Spain-based cellulosic yarn producer, INACSA will also boost the growth of the company’s textiles innovation products like Naia cellulosic yarn.

Moreover, Eastman Chemical remains committed to boost shareholder returns. The company returned $423 million to shareholders through share repurchases and dividends during the first half of 2019. Eastman Chemical expects to generate solid free cash flow (of around $1.1 billion) in 2019.

A Few Headwinds

Eastman Chemical is witnessing lower demand for its specialty products in China due to trade tensions. The company faced challenging global economic conditions in the second quarter due to trade issues. Trade-related pressures impacted consumer discretionary markets such as automotive and consumer durables across China and Europe in the quarter.

Eastman Chemical, in its second-quarter earnings call, said that it does not expect underlying macroeconomic conditions to improve in second-half 2019 due to challenging global business environment as a result of the trade conflict. However, the company expects lower customer inventory destocking.

The company also faces currency headwinds due to a stronger U.S. dollar. It expects roughly 30 cents headwind associated with currency in 2019. The company also anticipates pension-related headwind of around 20 cents for 2019.

Moreover, Eastman Chemical’s fiber segment continues to be hurt by lower acetate tow volumes. Trade-related issues are affecting demand, hurting tow volumes. Volumes in this unit are likely to remain under pressure.

Eastman Chemical Company Price and Consensus

 

Eastman Chemical Company Price and Consensus

Eastman Chemical Company price-consensus-chart | Eastman Chemical Company Quote

Stocks Worth Considering

Better-ranked stocks worth a look in the basic materials space include Arconic Inc ARNC, Kinross Gold Corporation KGC and Alamos Gold Inc. AGI, all sporting a Zacks Rank #1 (Strong Buy).

Arconic has an estimated earnings growth rate of 50% for the current year. Its shares have moved up 14% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross has projected earnings growth rate of 170% for the current year. The company’s shares have surged around 73% in a year’s time.

Alamos Gold has estimated earnings growth rate of 340% for the current year. The company’s shares have rallied roughly 30% in a year’s time.

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