We are retaining our Outperform recommendation on
Eastman Chemical Company
) following our assessment of its first-quarter 2012 results.
Adjusted earnings of $1.22 a share outstripped the Zacks Consensus
Estimate of $1.14.
Revenues rose 4% year over year to $1,821 million, yet missed
the Zacks Consensus Estimate. The growth was backed by higher
selling prices and double-digit revenue expansion at the
Tennessee-based company's Fibers segment.
Eastman Chemical expects volatility in raw material and energy
costs to subside moving ahead. The company also expects capacity
expansion and its impending acquisition of Solutia Inc. to benefit
earnings 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,
recent acquisitions (including Brazilian plasticizers maker
Scandiflex) and cost-cutting measures. It has sold unprofitable
units and closed down the poorly performing ones.
We believe Eastman Chemical is well placed to benefit, in
second-half 2012, from the synergies of the Solutia acquisition.
The acquisition (expected to close in mid-2012) is a major step in
the company's strategy to boost its foothold in the emerging
In particular, the Solutia deal 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.
Increased capacity additions should also support Eastman
Chemical's results in 2012. The company recently announced the
startup of its non-phthalate plasticizer manufacturing facility in
Texas City. The facility, which Eastman Chemical bought in
mid-2011, will produce "Eastman 168" non-phthalate plasticizer,
increasing its capacity by roughly 60%. With the capacity
expansion, the company will be able to serve the growing needs of
non-phthalate plasticizers worldwide.
Eastman Chemical competes with
The Dow Chemical Company
EI DuPont de Nemours and Company
). Our recommendation on the stock is backed by a short-term Zacks
#2 Rank (Buy).
CELANESE CP-A (CE): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis
DOW CHEMICAL (DOW): Free Stock Analysis Report
EASTMAN CHEM CO (EMN): Free Stock Analysis
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