Celanese a Near-Term Hold

The Dallas-based global hybrid chemical company Celanese Corporation (CE - Analyst Report) has a strong growth strategy with development in Asia as a key factor. There is $400 million of free cash flow per year, primarily focused on share repurchase.

However, Celanese is likely to face slackening demand in 2008-2009 due to a global economic slowdown, combined with exceptionally high raw material and energy costs. Major raw materials are natural gas, ethylene and methanol. As the economy slows, the company will find it difficult to pass these to customers.

Currently, Celanese is valued at 3.0x our 2008 estimate of $3.70. There is higher pricing on continued strong global demand for Acetyl Intermediates products. In addition, the company has leadership positions in oligopolistic markets that have solid fundamentals.

However, higher raw material costs and a slackening demand due to global economic slowdown force us to rate the shares a Hold with a target of $10. This is 2.7x our 2008 estimate.

Read the full analyst report on CE

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