We have retained our Neutral recommendation on
Eastman Chemical
(
EMN
) following our assessment of its fourth-quarter 2012 results.
While the company is poised to benefit from Solutia acquisition
and capacity additions, a weak European market remains as
overhang.
Why Retained?
Eastman Chemical slipped to a loss in the fourth quarter hurt by
losses related to pension benefit and other charges. Earnings, as
adjusted, matched the Zacks Consensus Estimate. Revenues rose at
a double-digit clip riding on the contributions of Solutia
acquisition, but missed the Zacks Consensus Estimate.
Eastman Chemical's diversified chemical portfolio, along with
its integrated and diverse downstream businesses remains its
strength. It also benefits from business restructuring and
cost-cutting measures.
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. Factoring in the synergies
of Solutia acquisition, the company raised its adjusted earnings
forecast for 2013 to a band of $6.30 to $6.40 a share from its
earlier view of $6.25. Annual cost synergies are expected to
exceed $100 million in 2013.
Eastman Chemical should also benefit from increased capacity
additions. The company 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 mid-2013.
However, the company remains exposed to weak pricing across
specific markets. Lower pricing affected the results across a
number of reporting segments in the fourth quarter. Moreover,
uncertainty regarding the timing of a recovery in Europe also
remains a concern.
Eastman Chemical currently holds a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other companies in the chemical industry worth considering are
Arkema S.A.
(
ARKAY
),
BASF SE
(
BASFY
) and
Air Products
(
APD
). While Arkema retains a Zacks Rank #1 (Strong Buy), both BASF
and Air Products hold a Zacks Rank #2 (Buy).
AIR PRODS & CHE (APD): Free Stock Analysis
Report
(ARKAY): ETF Research Reports
BASF SE (BASFY): Free Stock Analysis Report
EASTMAN CHEM CO (EMN): Free Stock Analysis
Report
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