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 are down 27% over a year compared with the 14% decline 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 benefited from new projects wins in 2019. Celanese commercialized more than 4,000 projects last year in its Engineered Materials unit with project wins in targeted applications of medical, electric vehicles and 5G electronics in the fourth quarter.
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 Engineered Materials segment. The acquisition of Elotex will also boost the company’s position in the vinyl acetate ethylene emulsions space.
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. During 2019, the company returned a record $1.3 billion to shareholders through dividends and share repurchases. It generated operating cash flow of $1.5 billion and free cash flow of $1.1 billion in 2019.
A Few Concerns
Celanese is exposed to a sluggish demand environment. It continued to witness demand slowdown in the fourth quarter. Demand weakness across certain markets including automotive hurt its sales in the quarter. Celanese does not expect any meaningful improvement in demand conditions on a year-over-year basis in 2020. Soft demand conditions are likely to continue in the first quarter of 2020.
Moreover, results in the company’s Acetyl Chain segment are expected to be affected by the impact of turnarounds at its Clear Lake methanol facility in Texas as well as Clear Lake and Nanjing acetic acid plants. The company expects roughly $15-$20 million of expenses mainly related to methanol turnarounds for the first quarter. Turnaround costs for full-year 2020 has been projected at $70-$80 million, most of which are expected to take effect during the first half.
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space are Daqo New Energy Corp. (DQ - Free Report) , NovaGold Resources Inc. (NG - Free Report) and Barrick Gold Corporation (GOLD - Free Report) .
Daqo New Energy has a projected earnings growth rate of 3.7% for 2020. The company’s shares have rallied around 57% in a year. It currently sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently carries a Zacks Rank #1. The company’s shares have surged roughly 54% in a year.
Barrick Gold currently has a Zacks Rank #2 (Buy) and a projected earnings growth rate of 49% for 2020. The company’s shares have rallied around 29% in a year.
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