We are reaffirming our Outperform recommendation on
Eastman Chemical Company
). We believe that the company is well placed to benefit in the
second half of 2012 from the synergies of Solutia acquisition.
Adjusted earnings of $1.40 a share for second-quarter 2012 topped
the Zacks Consensus Estimate by 6 cents. Revenues, however, dipped
2% year over year to $1,853 million, and missed the Zacks Consensus
Estimate of $1,948 million.
Eastman Chemical witnessed weakness across the board in the quarter
with its Specialty Plastics division, in particular, was hit by
weak demand. The company nevertheless continues to expect
double-digit earnings growth in 2012.
Eastman Chemical's diversified chemical portfolio, along with its
integrated and diverse downstream businesses, is driving earnings.
The company also benefits from business restructuring and
Eastman Chemical, in July 2012, completed its acquisition of
Solutia Inc., a global leader in performance materials and
specialty chemicals, in a cash and stock deal worth roughly $4.8
billion (including assumption of Solutia's debt). The acquisition
represents a major step in the company's strategy to boost its
foothold in the emerging markets.
Especially, the Solutia acquisition should significantly accelerate
Eastman Chemical's growth efforts and offer lucrative opportunities
in Asia Pacific. The company expects compound annual growth rate in
Asia Pacific to approach 10% over the next several years.
It expects meaningful revenue synergies by leveraging technology
and business capabilities and overlapping end-markets (especially
automotive and architecture) of both companies.
Increased capacity additions should also support Eastman Chemical's
results in 2012. The company's non-phthalate plasticizer
manufacturing facility in Texas City will produce "Eastman 168"
non-phthalate plasticizer, increasing its capacity by roughly 60%.
With the capacity expansion, Eastman Chemical will be able to serve
the growing needs of non-phthalate plasticizers globally.
Eastman Chemical is also making progress in its growth initiatives
through its joint venture in China for a 30,000-ton acetate tow
manufacturing facility, which is expected to come online in
Moreover, the company recently entered into a joint venture with
Sinopec Yangzi Petrochemical Company Limited to build a
hydrogenated hydrocarbon resin plant in Nanjing, China. The
facility will expand Eastman Chemical's total capacity for
hydrogenated resins by 50%, making it the largest supplier of
hydrogenated hydrocarbon resins globally.
CELANESE CP-A (CE): Free Stock Analysis Report
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Eastman Chemical, which competes with
The Dow Chemical Company
EI DuPont de Nemours and Company
), currently retains a short-term Zacks #2 Rank (Buy).