Celanese Corporation (CE - Free Report) is poised to benefit from its productivity measures, growth investments in organic projects and strategic acquisitions amid a challenging demand environment.
Shares of this leading chemical and specialty materials maker have rallied 40.5% year to date compared with the 14.4% rise of its industry.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Factors Aiding Celanese
Celanese is gaining from inorganic growth initiatives, productivity actions and investments in high-return organic projects. The company is committed to execute its productivity programs that include implementation of a number of cost reduction capital projects.
The company commercialized 1,315 projects during the third quarter, which contributed to its volume growth on a sequential comparison basis. It is on track to commercialize more than 4,000 projects in 2019.
Celanese also 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 are expected to significantly contribute to earnings expansion in the company's Engineered Materials segment.
The company is also implementing several process improvement projects across a global network of acetyls manufacturing plants. All these positions its Acetyl Chain unit for solid growth.
Celanese is also committed toward rewarding its shareholders with dividends and share buybacks, leveraging solid free cash flow generation. The company generated operating cash flow of $397 million and free cash flow of $315 million during the third quarter. It returned $352 million to shareholders through dividends and share repurchases during the quarter. Celanese has already returned $1 billion to shareholders this year.
A Few Concerns
Celanese is exposed to a challenging business environment. The company faces a sluggish demand environment, partly due to weakness across Europe and Asia. Demand weakness across end markets (particularly automotive and electronics) hurt sales in the company’s Engineered Materials unit in the third quarter. An improvement in demand conditions is not expected in the fourth quarter.
Celanese, last month, lowered its adjusted earnings per share guidance for 2019, factoring in its expectations that market conditions are not likely to improve this year. The company now sees adjusted earnings in the band of $9.60-$9.80 per share, compared with its prior view of roughly $10.50. The company expects demand weakness to continue through 2019. The revised earnings guidance also incorporates the fourth-quarter impact of earlier announced unplanned outage at the company’s Clear Lake facility in Texas.
Results in the company’s Acetyl Chain segment are expected to be hurt, in the fourth quarter, by the impact of the outage at the Clear Lake facility. On Sep 21, 2019, a localized fire broke out in the carbon monoxide production unit of the facility. The disruption affected production rates.
Celanese also faces some pressure in its Acetate Tow segment. Low utilization rates across the tow industry are affecting volumes of acetate tow. Demand remains subdued in the tow industry.
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include Kirkland Lake Gold Ltd. (KL - Free Report) , Agnico Eagle Mines Limited (AEM - Free Report) and Franco-Nevada Corporation (FNV - Free Report) .
Kirkland Lake Gold has projected earnings growth rate of 96.3% for the current year and sports a Zacks Rank #1 (Strong Buy). The company’s shares have surged around 105% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.
Agnico Eagle has a projected earnings growth rate of 168.6% for the current year and carries a Zacks Rank #2 (Buy). The company’s shares have rallied roughly 66% in a year’s time.
Franco-Nevada has estimated earnings growth rate of 46.2% for the current year and carries a Zacks Rank #2. The company’s shares have shot up roughly 44% in a year’s time.
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