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Why You Should Hold Onto Eastman Chemical (EMN) Stock for Now
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Eastman Chemical Company (EMN - Free Report) benefits from its cost-management actions, innovation-driven growth model and synergies of acquisitions amid challenges including a difficult demand environment.
Shares of the chemical maker are down 9.5% in the past year, compared with a 22.6% decline of its industry.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding the Stock?
Eastman Chemical's cost reduction actions and growth in high-margin innovation products are expected to contribute to its earnings. The company is focused on productivity and cost-cutting actions in the wake of a challenging environment. It is taking an aggressive approach to cost management. In response to the coronavirus pandemic, the company has significantly increased its cost reduction target, which is forecast to be roughly $150 million of net savings in 2020. These cost actions include reduction of discretionary spending.
The company is also focused on growing new business revenues from innovation. Eastman Chemical expects to generate roughly $500 million of new business revenues in 2020. In particular, the company’s Advanced Materials unit has a number of products that are driving new business revenues.
Eastman Chemical is also gaining from synergies of acquisitions. The buyout of Taminco Corporation has strengthened the company’s foothold in promising niche end-markets including food, feed and agriculture.
The purchase of Marlotherm heat transfer fluids manufacturing assets in Germany also allowed the company to boost its heat transfer fluids product offerings to customers globally. Moreover, the acquisition of Spain-based cellulosic yarn producer, INACSA reinforces the growth of the company’s textiles innovation products like Naia cellulosic yarn.
Moreover, Eastman Chemical remains focused on maintaining a disciplined approach to capital allocation, with an emphasis on financing its dividend and debt reduction. It expects to reduce debt by more than $400 million in 2020. The company has also taken steps to boost its cash flows. These include reduction of capital expenditure by around $100 million to $325-375 million. The company also expects working capital to be a source of more than $250 million of cash flows this year.
A Few Worries
Eastman Chemical is witnessing lower demand across certain markets, especially automotive. The company saw weak demand across transportation and textile markets in the first quarter of 2020 due to the coronavirus outbreak, hurting its volumes in these markets. The company expects greater challenges in transportation, textiles and energy markets in the second quarter. Building construction, consumer durables and electronics end-markets also remain somewhat weak. As such, sales volumes are expected to remain under pressure in the second quarter. The company has withdrawn its guidance for 2020 due to uncertainties surrounding the pandemic.
The company also faces headwind from costs associated with idling of a number of facilities and reduction of operating rates due to the coronavirus. It expects to record conversion costs associated with these moves in the second quarter. This is expected to weigh on its bottom line in the quarter.
Eastman Chemical is also exposed to challenges from lower product spreads in its Chemical Intermediates segment, which is affecting this business.
Better-ranked stocks worth considering in the basic materials space are Barrick Gold Corporation (GOLD - Free Report) , The Scotts Miracle-Gro Company (SMG - Free Report) and Newmont Corporation (NEM - Free Report) .
Scotts Miracle-Gro has an expected earnings growth rate of 17.7% for the current fiscal year. The company’s shares have gained roughly 63% in the past year. It currently carries a Zacks Rank #2.
Newmont has a projected earnings growth rate of 85.6% for the current year. The company’s shares have surged around 116% in a year. It currently has a Zacks Rank #2.
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Why You Should Hold Onto Eastman Chemical (EMN) Stock for Now
Eastman Chemical Company (EMN - Free Report) benefits from its cost-management actions, innovation-driven growth model and synergies of acquisitions amid challenges including a difficult demand environment.
Shares of the chemical maker are down 9.5% in the past year, compared with a 22.6% decline of its industry.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding the Stock?
Eastman Chemical's cost reduction actions and growth in high-margin innovation products are expected to contribute to its earnings. The company is focused on productivity and cost-cutting actions in the wake of a challenging environment. It is taking an aggressive approach to cost management. In response to the coronavirus pandemic, the company has significantly increased its cost reduction target, which is forecast to be roughly $150 million of net savings in 2020. These cost actions include reduction of discretionary spending.
The company is also focused on growing new business revenues from innovation. Eastman Chemical expects to generate roughly $500 million of new business revenues in 2020. In particular, the company’s Advanced Materials unit has a number of products that are driving new business revenues.
Eastman Chemical is also gaining from synergies of acquisitions. The buyout of Taminco Corporation has strengthened the company’s foothold in promising niche end-markets including food, feed and agriculture.
The purchase of Marlotherm heat transfer fluids manufacturing assets in Germany also allowed the company to boost its heat transfer fluids product offerings to customers globally. Moreover, the acquisition of Spain-based cellulosic yarn producer, INACSA reinforces the growth of the company’s textiles innovation products like Naia cellulosic yarn.
Moreover, Eastman Chemical remains focused on maintaining a disciplined approach to capital allocation, with an emphasis on financing its dividend and debt reduction. It expects to reduce debt by more than $400 million in 2020. The company has also taken steps to boost its cash flows. These include reduction of capital expenditure by around $100 million to $325-375 million. The company also expects working capital to be a source of more than $250 million of cash flows this year.
A Few Worries
Eastman Chemical is witnessing lower demand across certain markets, especially automotive. The company saw weak demand across transportation and textile markets in the first quarter of 2020 due to the coronavirus outbreak, hurting its volumes in these markets. The company expects greater challenges in transportation, textiles and energy markets in the second quarter. Building construction, consumer durables and electronics end-markets also remain somewhat weak. As such, sales volumes are expected to remain under pressure in the second quarter. The company has withdrawn its guidance for 2020 due to uncertainties surrounding the pandemic.
The company also faces headwind from costs associated with idling of a number of facilities and reduction of operating rates due to the coronavirus. It expects to record conversion costs associated with these moves in the second quarter. This is expected to weigh on its bottom line in the quarter.
Eastman Chemical is also exposed to challenges from lower product spreads in its Chemical Intermediates segment, which is affecting this business.
Eastman Chemical Company Price and Consensus
Eastman Chemical Company price-consensus-chart | Eastman Chemical Company Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space are Barrick Gold Corporation (GOLD - Free Report) , The Scotts Miracle-Gro Company (SMG - Free Report) and Newmont Corporation (NEM - Free Report) .
Barrick Gold has a projected earnings growth rate of 64.7% for the current year. The company’s shares have rallied roughly 131% in a year. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Scotts Miracle-Gro has an expected earnings growth rate of 17.7% for the current fiscal year. The company’s shares have gained roughly 63% in the past year. It currently carries a Zacks Rank #2.
Newmont has a projected earnings growth rate of 85.6% for the current year. The company’s shares have surged around 116% in a year. It currently has a Zacks Rank #2.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>