UPDATE: J.P. Morgan Initiates Coverage on Celanese Corporation with Neutral Rating, $38 PT

In a report published Friday, J.P. Morgan & Co. initiated coverage on Celanese Corporation

with a Neutral rating and $38.00 price target. J.P. Morgan noted, “North American ethylene companies have tremendously benefited from decreased raw material costs stemming from an elevation in the price of oil and a decrease in the price of ethane. This benefit may well be a structural advantage that maintains itself over the coming 4-5 years as ethane fractionation and pipeline capability is expanded in preparation for North American crackers to be constructed in the 2016-2020 period. Earnings and valuations for the ethylene companies have risen as the market has recognized the improving fundamentals. Celanese is a diversified North American commodity chemical company and, by contrast, benefits to a smaller degree from low-cost natural gas stemming from a favorable domestic methanol supply agreement with Southern Chemical. But Celanese will now spend meaningfully to build methanol capacity to replace the Southern Chemical contract expiring on July 1, 2015. Its key geography is China, where returns have been lackluster due to large increments of growth in acetic acid capacity by Chinese competitors. As a result, there have not been the same profitability, profit growth and return dynamics for Celanese as there have been for some of the US ethylene companies. CE's returns tend to be lower, its balance sheet more leveraged, and its free cash flow generation smaller. We rate CE Neutral with a December 2013 price target of $38 per share.” Celanese Corporation closed on Thursday at $38.21.