Why Celanese Trades at Premium Compared to Its Peers
Celanese’s forward PE ratio
On September 27, Celanese (CE) had a one-year forward price-to-earnings (or PE) multiple of ~13.3x compared to its peer Eastman Chemical (EMN). EMN had one-year forward price-to-earnings multiple of ~11.0x. Forward PE is one of the valuation methods that consider future earnings at the time of the valuation.
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Forward PE can be useful for investors when assessing two companies that are operating in the same industry. Forward PE helps investors determine whether a company is undervalued or overvalued.
Celanese trades at a premium
Celanese (CE) trades at a premium compared to Eastman Chemical. CE reported earnings that exceeded analyst expectations. CE also made an upward revision to the lower end of its adjusted EPS (earnings per share).
As a result, analysts expect Celanese to post adjusted EPS of $7.33, an increase of 10.8% over the previous year. For fiscal 2018, analysts project Celanese’s adjusted EPS to be $8.10, implying growth of 10.6% over the expected adjusted EPS in fiscal 2017.
On the other hand, analysts expect EMN’s 2018 adjusted EPS to be $8.17, reflecting growth of 8.6% over its expected adjusted EPS in 2017. Because CE’s one-year forward expected earnings growth is better than Eastern Chemical’s forward expected earnings growth, CE is trading at a premium to EMN.
Investors can indirectly hold Celanese by investing in the First Trust Materials AlphaDEX ETF (FXZ), which invests 1.9% of its portfolio in Celanese. The other holdings of the fund include Westlake Chemical (WLK) and Owens Corning (OC), with weights of 4.0% and 3.7%, respectively, on September 27, 2017.