On Aug 20, we issued an updated research report on chemical maker Celanese ( CE ). While the company's strategic actions should drive earnings this year, it is exposed to volatility in raw material costs and certain operational challenges.
Celanese posted forecast-topping results for second-quarter 2014 results on Jul 17. Both revenues and adjusted earnings for the quarter topped Zacks Consensus Estimates. Profit jumped year over year on higher margins across most businesses. The company raised its earnings growth forecast for 2014 to 15% to 17% from 12% to 14% expected earlier.
Celanese's strong presence in emerging markets will enable it to deliver incremental earnings in 2014. Earnings are expected to be driven by company-specific initiatives including innovation of new products and enhancement of efficiencies through productivity.
Celanese has taken up cost-cutting measures and the necessary steps to run its plants better and counter weak demand. It is aggressively expanding its capacity in the emerging Asian markets. The company's expansion initiatives in China are expected to support earnings growth. Celanese's integrated chemical complex in Nanjing, China, serves as a base for expansion in Asia, supporting the region's increasing demand.
Moreover, Celanese continues to generate strong cash flows and remains focused on returning value to its shareholders. The company deployed around $89 million on dividends and share repurchases in the second quarter.
However, Celanese is exposed to raw material supply issues and cost pressures. Demand in the company's core acetyl business also remains somewhat weak, in part, due to a still sluggish operating backdrop in Europe.
Moreover, Celanese saw a roughly $20 million impact in the second quarter associated with major turnaround at its Clear Lake unit and certain production disruptions, and expects some outage-related headwinds in the third quarter. The company's balance sheet leverage is also relatively high, limiting its financial flexibility.
Other Stocks to Consider
Other companies in the chemical space with favorable Zacks Rank include Green Plains Inc. ( GPRE ), LyondellBasell Industries NV ( LYB ) and Johnson Matthey plc ( JMPLY ). While Green Plains retains a Zacks Rank #1 (Strong Buy), both LyondellBasell and Johnson Matthey hold a Zacks Rank #2 (Buy).
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