Eastman Upgraded to Outperform - Analyst Blog

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We are upgrading our recommendation on Eastman Chemical Company ( EMN ) to Outperform from Neutral based on its fourth-quarter 2011 results.

Eastman Chemical reported earnings of 71 cents per share in fourth-quarter 2011 compared with 70 cents per share a year earlier.

Revenues in the quarter climbed 18% year over year to $1.7 billion, driven by increased selling prices and higher sales volumes. Operating earnings in the quarter increased to $163 million from $161 million in the fourth quarter of 2010.

For full-year 2011, the company reported earnings of $4.56 per share (excluding asset impairments and restructuring charges and gains) compared with $3.48 per share in 2010 (excluding asset impairments, restructuring charges and early debt extinguishment charges).

Eastman Chemical is gradually making progress in its growth initiatives through a joint venture in China for a 30,000-ton acetate tow manufacturing facility, which is expected to be operational in 2013. The facility will enable test-marketing in the first half of 2012.

Moreover, Eastman Chemical entered into a definitive agreement with Solutia Inc. ( SOA ), under which Eastman will acquire Solutia, a global leader in performance materials and specialty chemicals. As per the agreement, Solutia stockholders will receive $22.00 in cash and 0.12 shares of Eastman common stock for each share of Solutia common stock.

This acquisition will help Eastman to increase its global presence in the emerging markets, thereby accelerating its growth efforts by offering excellent growth opportunities in Asia Pacific. The transaction will be immediately accretive to earnings, excluding acquisition-related costs and charges and is expected to close in mid-2012. After giving effect to the acquisition of Solutia, including expected cost synergies, Eastman expects 2012 EPS to be approximately $5 excluding acquisition-related costs and charges. Eastman is also increasing its 2013 EPS expectation to greater than $6.

We believe Eastman will continue to benefit from its integrated and diverse downstream businesses, driving earnings. The company benefits from business restructuring and cost-cutting measures. It sold unprofitable units and closed down the poorly performing ones. However, the company faces volatility in raw material and energy costs, higher pension expenses and other growth-related costs.

Eastman battles with large multinational companies, such as Celanese Corporation ( CE ) and The Dow Chemical Company ( DOW ) and EI DuPont de Nemours and Company ( DD ) across its major business segments.

Currently, Eastman has a Zacks #1 Rank (Strong Buy) for the short-term (1 to 3 months). We are maintaining a long-term (more than 6 months) "Outperform" recommendation on the shares.


 
CELANESE CP-A ( CE ): Free Stock Analysis Report
 
DU PONT ( EI ) DE ( DD ): Free Stock Analysis Report
 
DOW CHEMICAL ( DOW ): Free Stock Analysis Report
 
EASTMAN CHEM CO (EMN): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CE , DD , DOW , EI , SOA

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