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On Sep 12, we reaffirmed our Neutral recommendation on chemical and advanced materials maker Celanese Corporation (CE - Analyst Report). While we are encouraged by the company’s strategic actions to drive earnings, we remain concerned about weak demand for acetyl products. 
 
Why Kept?
 
Both revenues and adjusted earnings for second-quarter 2013, reported on Jul 18, missed Zacks Consensus Estimates. Celanese expects challenging economic conditions to continue through 2013, but expects earnings to rise on the back of company-specific initiatives.
 
Celanese, a Zacks Rank #3 (Hold) stock, is witnessing weak demand and pricing in its acetyl business. Weak global demand for acetyl products led to a decline in prices in the Acetyl Intermediates division in the second quarter. Challenging economic conditions in Europe and sluggish growth in Asia may impact the company’s results moving ahead.
 
Moreover, Celanese is exposed to raw material supply issues and cost pressures. The company’s balance sheet leverage is also relatively high, limiting its financial flexibility.
 
Nevertheless, Celanese’s strong presence in emerging markets will enable it to deliver incremental earnings in 2013. The company has taken up cost-cutting measures and the necessary steps to run its plants better to counter weak demand. Moreover, Celanese continues to generate strong cash flows and remains focused on returning value to its shareholders.
 
Celanese is aggressively expanding capacity in the emerging Asian markets. Its 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.
 
Other Stocks to Consider
 
Other companies in the chemical space having favorable Zacks Rank include Akzo Nobel NV (AKZOY), Eastman Chemical Co. (EMN - Analyst Report) and Ferro Corporation (FOE - Snapshot Report). All of them hold a Zacks Rank #2 (Buy).

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