Celanese Corporation’s (CE - Free Report) stock looks to be a solid bet now based on its strong earnings outlook, solid fundamentals and compelling business prospects.
The leading chemical and specialty materials maker is well poised for growth on the back of its inorganic growth actions, strength of its commercial models and growth investments in organic projects. The company also remains committed toward rewarding its shareholders with dividends and share buybacks leveraging solid free cash flow generation.
The trend in earnings estimate revisions also indicates a solid earnings outlook for Celanese. This adds to its already impressive earnings profile.
Celanese currently carries a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors.
Let's see what makes Celanese stock an attractive investment option at the moment.
Positive Earnings Surprise History
Celanese has an impressive earnings surprise history. The company has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of roughly 13.3%.
Celanese has outperformed the industry over the past two years. The company’s shares have gained around 9.9% over this period, compared with a paltry 0.2% growth recorded by the industry.
Growth prospects for Celanese look encouraging. The Zacks Consensus Estimate for earnings for 2018 for Celanese is currently pegged at $11.10, reflecting an expected year-over-year growth of 47.8%. Moreover, earnings are expected to register a 23.2% growth in fourth-quarter 2018. The company also has an expected long-term earnings per share growth rate of 10%.
Earnings estimates for 2018 have also moved up over the past three months. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 5%. The same for the fourth quarter have moved up 7.5% over the same period.
Revenues for Celanese for 2018 is projected to rise roughly 17.2% year over year as the Zacks Consensus Estimate for the year is currently pegged at $7.2 billion. Revenues for the fourth quarter are also expected to increase 8.9% year over year as the Zacks Consensus Estimate is $1.74 billion.
Celanese also continues to generate strong free cash flows and remains focused on returning value to its shareholders. Celanese generated free cash flow of $382 million in the third quarter and returned $223 million to shareholders through dividends and share repurchases. Dividends and share buybacks totalled $459 million for the first nine months of 2018. Notably, the company has returned $3.2 billion through dividends and repurchases since 2012.
Celanese has a current dividend yield of 2.37%, higher than the broader industry’s average dividend yield of 1.28%. The company, in April 2018, bumped up its quarterly cash dividend by 17% to 54 cents per share from the prior payout of 46 cents. This marked the ninth straight year of dividend increases.
Moreover, free cash flow yield for Celanese stands at 7.5%, which is higher than 1.4% for its industry. The company expects to deliver free cash flow of nearly $1.2 billion in 2018. This strongly places it to offer incremental returns to shareholders through further dividend hikes and repurchases.
Valuation looks attractive as Celanese’s shares are currently trading at a level that is lower than the industry average, suggesting that the stock still has upside potential.
Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value chemical stocks, Celanese is currently trading at trailing 12-month EV/EBITDA multiple of 8.2, much cheaper compared with the industry average of 21.6.
Superior Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Celanese is 39.4%, above the industry’s level of 16.7%.
Strategic Actions to Boost Growth
Celanese, in October, raised its adjusted earnings per share guidance for 2018 to roughly $10.90-$11.10 from its earlier view of $10.50-$10.75 factoring in strength in its Engineered Materials (EM) and Acetyl Chain units. The company expects the momentum in Acetyl Chain and EM to continue in the rest of 2018. The EM segment is expected to keep the pace of earnings growth with traction from new projects and bolt-on acquisitions.
The company’s strategic measures including cost savings through productivity actions and efficiency enhancement are expected to continue to drive its earnings. Its bottom line is expected to be driven by productivity actions and operational improvement. Price increase actions in the wake of raw material cost inflation should also lend support to margins.
The company’s EM unit is poised for strong growth on the back of recent acquisitions, new business wins, growth in Asia and significant project commercialization.
Celanese continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies. The acquisitions of SO.F.TER., Nilit and Omni Plastics (each having project opportunities of 500 or more) are expected to significantly contribute to earnings expansion in the EM segment.
Improving industry fundamentals and favorable global supply and demand dynamics also augur well for Celanese’s Acetyl Chain segment. The company is also implementing several process improvement projects across a global network of acetyls manufacturing plants. All these positions the Acetyl Chain unit for solid growth.
Other Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include The Mosaic Company (MOS - Free Report) , CF Industries Holdings, Inc. (CF - Free Report) and Ingevity Corporation (NGVT - Free Report) .
Mosaic has expected long-term earnings growth rate of 7% and sports a Zacks Rank #1. Its shares have surged 41% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
CF Industries has expected long-term earnings growth rate of 6% and carries a Zacks Rank #1. Its shares have gained 4% in a year.
Ingevity has expected long-term earnings growth rate of 12% and carries a Zacks Rank #2. Its shares have gained 15% in a year.
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