On Feb 6, we reaffirmed our Neutral recommendation on
). While the company should gain from Solutia acquisition,
cost-cutting measures and capacity additions, we remain on the
sidelines considering raw material cost pressures and a still
weak European market.
Eastman Chemical, a Zacks Rank #3 (Hold) stock, posted
better-than-expected fourth-quarter 2013 results on Jan 30. Both
revenues and adjusted earnings for the quarter beat Zacks
Consensus Estimates. Strength across Additives and Functional
Products, Advanced Materials and Fibers divisions boosted the
bottom line in the quarter. The company expects to benefit from
its strategic actions in 2014.
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 ended 2013 with
over $100 million in cost synergies from the acquisition.
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 this
year. 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
Eastman Chemical also remains committed to boost shareholder
returns, manifested by the recent 17% hike in its quarterly
dividend to 35 cents per share from the prior payout of 30
However, uncertainty regarding the timing of a recovery in
Europe remains a concern. Automobile as well as building and
commercial construction markets still remain soft in Europe.
Moreover, Eastman Chemical remains exposed to volatility in
raw material costs and pricing pressure. Higher energy and raw
material costs, particularly for propane, are expected to weigh
on the company's earnings in 2014.
Weak demand for adhesives resins in specific markets and lower
pricing due to competitive pressure is also affecting sales in
the company's Adhesives and Plasticizers segment.
Other Stocks to Consider
Other companies in the chemical industry worth considering
Northern Technologies International
The Dow Chemical Co.
). While both Methanex and Northern Technologies carry a Zacks
Rank #1 (Strong Buy), Dow Chemical holds a Zacks Rank #2
DOW CHEMICAL (DOW): Free Stock Analysis
EASTMAN CHEM CO (EMN): Free Stock Analysis
METHANEX CORP (MEOH): Free Stock Analysis
NORTHERN TECH (NTIC): Free Stock Analysis
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