CE continues to generate strong cash flow (~$1.3 billion FCF in 2023), and is on track to pay down >$1 billion in debt (to achieve ~3x net leverage target at FY24), notes the analyst.

CE slightly lowered its FCF guidance for FY23 to $1.3 billion from $1.4 billion on lower earnings. 

However, the analyst thinks the debt paydown is possible on cash repatriation, debt re-domiciling efforts, the closing of its Food Ingredients JV (~$400 million–450 million), and a working capital reduction plan.

The company is also successfully breezing past the issues around inflation, volatile demand in China and autos, and European exposure reasonably well.

Demand volatility is exacerbated by continued destocking, especially in EM, persisting longer than historically. 

Positively, CE noted that destocking should mostly be complete in 2023, with Mobility & Materials Business delivering synergies of over $225 million by next year, and the company continues to de-lever its balance sheet.

However, the analyst cautions about demand headwinds for the company.

CE is seeing demand levels vary substantially across end markets with resilience in medical, auto, and packaging but stricter conditions in consumer electronics, construction, industrial, and distribution.

As a result, the analyst lowered the FY23 EPS estimate to $9-$10 (vs $11-$12 previously). 

Price Action: CE shares are trading higher by 0.14% to $126.43 on the last check Thursday.