Celanese Corporation (CE - Free Report) is poised for growth on the back of its inorganic growth actions, strength of its commercial models and growth investments in organic projects.
Shares of this leading chemical and specialty materials maker, which currently carries a Zacks Rank #3 (Hold), have lost 15.4% over the past year compared with the 10.2% decline of its industry.
What’s Working in CE’s Favor?
Celanese, in October 2018, 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. 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 initiatives, price increase 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.
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.
The company also remains committed toward rewarding its shareholders with dividends and share buybacks leveraging solid free cash flow generation. 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.
The company, in April 2018, also 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.
A Few Headwinds
Celanese faces pricing pressure in its Acetate Tow segment. Low utilization rates across the tow industry are affecting the prices of acetate tow. Lower tow prices are, in turn, pressuring the earnings generated by the Acetate Tow unit. Demand and utilization rates remain subdued across the tow industry. As such, margins for the Acetate Tow unit are expected to remain under pressure.
The company is also exposed to margin pressure from raw material cost inflation as well as elevated energy and logistic costs. It is taking pricing actions amid an inflationary environment.
Stocks to Consider
A few better-ranked stocks worth considering in the basic materials space include Ingevity Corporation (NGVT - Free Report) , Quaker Chemical Corporation (KWR - Free Report) and Cameco Corporation (CCJ - Free Report) .
Ingevity has an expected earnings growth rate of 21.5% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares have gained 15% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Quaker Chemical has an expected earnings growth rate of 21.1% for the current year and carries a Zacks Rank #2 (Buy). Its shares have gained 20% in the past year.
Cameco has an expected earnings growth rate of 20% for the current year and carries a Zacks Rank #2. The company’s shares have rallied 25% over the past year.
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