Eastman Chemical Gains on Cost-Cut Actions Amid Weak Demand

We issued an updated research report on Eastman Chemical Company EMN on July 15.

The company's cost management actions and growth in high-margin innovation products are expected to contribute to its earnings in 2020. Eastman Chemical is taking an aggressive approach to manage cost in a challenging environment. In response to the coronavirus pandemic, the company raised its cost-reduction target, which is projected to be around $150 million of net savings in 2020. These cost-cut actions include reduction of discretionary spending.

Eastman Chemical is also focused on growing new business revenues through innovation. The company expects to generate around $500 million of new business revenues in 2020. Especially, the company’s Advanced Materials unit has a number of products that are driving new business revenues.

The company is also undertaking actions to boost its cash flows, including the reduction of capital expenditures by around $100 million to $325-375 million. It also expects working capital to be a source of more than $250 million of cash flows this year. Eastman Chemical also expects to reduce debt by more than $400 million in 2020.

However, the company is witnessing weaker demand across certain markets. Lower demand in transportation and textile markets in the first quarter due to the pandemic affected volumes in these markets. Further, Eastman Chemical envisions greater challenges in transportation, textiles and energy markets in the second quarter. As such, sales volumes are expected to remain under pressure in the second quarter. Also, the company has withdrawn its guidance for 2020 due to uncertainties surrounding the pandemic.

Shares of Eastman Chemical have lost 3.5% in the past year compared with 8.6% decline of its industry.

Zacks Rank & Key Picks

Eastman Chemical currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space include Sandstorm Gold Ltd. SAND, Harmony Gold Mining Company Limited HMY and Northern Dynasty Minerals Ltd. NAK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Sandstorm Gold has an expected earnings growth rate of 55.6% for 2020. The company’s shares have surged 65.3% in the past year.

Harmony Gold has an expected earnings growth rate of 264.3% for fiscal 2020. Its shares have returned 147.9% in the past year.

Northern Dynasty has an expected earnings growth rate of 28.6% for 2020. The company’s shares have skyrocketed 207.5% in the past year.

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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 Nasdaq, Inc.

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