On Jul 8, we downgraded our recommendation on chemical and
advanced materials maker
) to Neutral. While we are encouraged by the company's strategic
actions (including acetate capacity expansion) to drive earnings,
we are concerned about weak demand for acetyl products.
Why the Downgrade?
Celanese's first-quarter 2013 adjusted earnings, reported on Apr
18, outpaced the Zacks Consensus Estimate while sales missed.
Weakness in the core Acetyl Intermediates segment (roughly 50% of
total sales) contributed to a decline in the top line. While
Celanese envisions challenging economic conditions to sustain
moving ahead, it expects earnings to rise on the back of
Celanese is witnessing weak demand and pricing in its acetyl
business. Weak global demand for acetyl products led to a decline
in pricing and volume in the Acetyl Intermediates division in the
first quarter. Challenging economic conditions in Europe and
sluggish growth in Asia may impact the company's results moving
Moreover, Celanese is exposed to volatility in raw material costs
and currency headwinds. The company's balance sheet leverage is
also relatively high, limiting its financial flexibility.
Nevertheless, Celanese's strong presence in emerging markets will
enable it to deliver incremental earnings in 2013. The company
has taken up cost-cutting measures and the necessary steps to run
its plants better to counter weak demand.
Celanese is aggressively expanding capacity in the emerging Asian
markets. Its expansion initiatives in China are expected to
support earnings growth. Celanese's integrated chemical complex
in Nanjing, China, serves as a base for expansion in Asia,
supporting the region's increasing demand.
Celanese currently carries a short-term (1 to 3 months) Zacks
Rank #3 (Hold).
Other Stocks to Consider
Other companies in the chemical space that are worth
Cytec Industries Inc.
PPG Industries Inc.
). All of them retain a Zacks Rank #2 (Buy).
ARKEMA-ADR (ARKAY): Get Free Report
CELANESE CP-A (CE): Free Stock Analysis
CYTEC INDS INC (CYT): Free Stock Analysis
PPG INDS INC (PPG): Free Stock Analysis
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