On Nov 4, we reiterated our Neutral recommendation on
). While the company should gain from Solutia acquisition,
cost-cutting measures and capacity additions, we prefer to tread
with caution considering raw material cost pressures and a weak
Eastman Chemical, a Zacks Rank #3 (Hold) stock, posted
better-than-expected third-quarter 2013 results on Oct 24 with
both revenues and adjusted earnings coming ahead of Zacks
Consensus Estimates. Profit doubled year over year on strength
across Additives and Functional Products and Advanced Materials
The company, however, cut its earnings guidance for the full
year, factoring in higher raw material and energy costs and
sustained challenges in its Adhesives and Plasticizers business.
Eastman Chemical's diversified chemical portfolio, along with its
integrated and diverse downstream businesses remains its
strength. It also benefits from business restructuring and
The acquisition of Solutia represents a major step in Eastman
Chemical's strategy to boost its foothold in the emerging
markets, especially in Asia Pacific. The company sees cost
synergies of more than $100 million this year.
Eastman Chemical should also gain from increased capacity
additions. The acetate tow manufacturing facility, the company's
joint venture investment in China, is now in operation and
earnings benefit from the joint venture is expected to begin in
Moreover, Eastman Chemical is seeing strong adoption of Tritan
copolyester product line and it is increasing Tritan capacity at
its Kingsport facility by around 25%. It is also expanding
capacity for its Therminol heat transfer fluids.
However, uncertainty regarding the timing of a recovery in Europe
remains a concern. Automobile as well as building and commercial
construction markets remain soft in Europe.
Moreover, Eastman Chemical remains exposed to volatility in raw
material costs and pricing pressure. Weak demand for adhesives
resins in specific markets is also affecting sales in its
Adhesives and Plasticizers segment.
Other Stocks to Consider
Other companies in the chemical industry with favorable Zacks
PPG Industries Inc.
). While both Asahi Kasei and Methanex hold a Zacks Rank #1
(Strong Buy), PPG Industries retains a Zacks Rank #2 (Buy).
ASAHI KASEI CP (AHKSY): Get Free Report
EASTMAN CHEM CO (EMN): Free Stock Analysis
METHANEX CORP (MEOH): Free Stock Analysis
PPG INDS INC (PPG): Free Stock Analysis
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