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Here's Why You Should Buy Celanese (CE) Stock Right Now

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Celanese Corporation’s (CE - Free Report) stock looks to be a solid bet now based on its strong fundamentals and compelling business prospects. The company’s shares have popped roughly 26% over the past three months.

The leading chemical and specialty materials maker is well placed for growth on the back of its inorganic growth actions, strength of its commercial models and investments in organic projects. The company also remains committed toward rewarding its shareholders with dividends and share buybacks leveraging solid free cash flow generation.

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.

Estimates Northbound

Earnings estimate revisions have the greatest impact on stock prices. Over the past two months, the Zacks Consensus Estimate for Celanese for the current year has increased around 0.7%. The consensus estimate for 2021 has also been revised 1.5% upward over the same time frame.

Positive Earnings Surprise History

Celanese has outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, it has delivered a positive average earnings surprise of roughly 0.5%.

Cash Deployment

Celanese is 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. Moreover, the company returned $224 million to shareholders (including $74 million in dividends) in the first quarter of 2020. It generated operating cash flow and free cash flow of $259 million and $135 million, respectively, in the quarter.

Attractive Valuation

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 9.63, much cheaper compared with the industry average of 30.1.

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 37.2%, above the industry’s level of 13.9%.

Strategic Actions to Boost Growth

Celanese is benefiting 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’s margins are expected to be supported by productivity initiatives, price hike actions and operational improvement. The company expects to achieve gross savings of $200 million from its productivity actions in 2020. It also expects to generate one-time cost savings of $30-$40 million through reductions in travel, manufacturing costs and other corporate function expense.

Celanese also expects to generate $300-$400 million of incremental cash on account of the actions that it is currently taking on productivity, working capital management and capital expenditure prioritization.

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.
 

 

Stocks to Consider

Some other top-ranked stocks worth considering in the basic materials space include Agnico Eagle Mines Limited (AEM - Free Report) , Harmony Gold Mining Company Limited (HMY - Free Report) and AngloGold Ashanti Limited (AU - Free Report) .

Agnico Eagle has a projected earnings growth rate of 53.6% for the current year. The company’s shares have rallied roughly 25% in a year. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Harmony Gold has an expected earnings growth rate of 28.6% for the current year. The company’s shares have shot up 87% in the past year. It presently carries a Zacks Rank #2.

AngloGold has a projected earnings growth rate of 109.9% for the current year. The company’s shares have surged around 67% in a year. It currently has a Zacks Rank #2.

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