Celanese: Risk-Reward Even - Analyst Blog

On May 16, we issued an updated research report on Celanese CE. While the chemical maker's strategic actions should drive earnings this year, it is exposed to certain near-term challenges.
 
Celanese, a Zacks Rank #3 (Hold) stock, posted better-than-expected first-quarter 2014 results on Apr 21. Both revenues and adjusted earnings for the quarter topped Zacks Consensus Estimates. Celanese expects earnings to rise 12% to 14% in 2014. Earnings are expected to be driven by company-specific initiatives including innovation of new products and enhancement of efficiencies through productivity.
 
Celanese's strong presence in emerging markets will enable it to deliver incremental earnings in 2014. The company has taken up cost-cutting measures and the necessary steps to run its plants better and counter weak demand. 
 
Celanese is aggressively expanding its capacity in the emerging Asian markets. Its expansion initiatives in China are expected to support earnings growth. Celanese's integrated chemical complex in Nanjing, China, serves as a base for expansion in Asia, supporting the region's increasing demand.
 
Moreover, Celanese continues to generate strong cash flows and remains focused on returning value to its shareholders. Its Board, in Apr 2014, approved a 39% hike in its quarterly dividend to 25 cents per share. 
 
However, Celanese is exposed to raw material supply issues and cost pressures. Moreover, demand in the company's core acetyl business remains somewhat weak, in part, due to a still sluggish operating backdrop in Europe.
 
Celanese's balance sheet leverage is also relatively high, limiting its financial flexibility. In addition, Celanese expects a $20 million headwind in the second quarter associated with major turnaround at its Clear Lake, TX acetyl unit and lower earnings in its cellulose derivatives business due to certain production disruptions.
 
Key Picks from the Sector
 
Other companies in the chemical space with favorable Zacks Rank include Compass Minerals International Inc. CMP, The Dow Chemical Company DOW and L'Air Liquide SA (AIQUY). While Compass Minerals carries a Zacks Rank #1 (Strong Buy), both Dow and L'Air Liquide retain a Zacks Rank #2 (Buy).

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DOW CHEMICAL DOW: Free Stock Analysis Report
 
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