Eastman Chemical’s forward PE
In the previous part of this series, we analyzed the analysts’ recommendations for Eastman Chemical (EMN). In this final part, we’ll compare EMN’s valuations with those of its peers.
On March 28, 2017, EMN was trading at a one-year forward PE (price-to-earnings) multiple of 10.70x, as compared to peers Dow Chemical (DOW), DuPont (DD), and LyondellBasell (LYB), which were trading at a one-year forward PE multiple of 15.50x, 21.80x, and 9.20x, respectively, on the same day.
Remember, the forward PE ratio is a relative valuation method that considers a company’s future earnings for calculation. The forward PE ratio tells how much the investors are paying for a stock per dollar of expected earnings over the next 12 months.
Forward PE represents one of the most popular valuation tools because it helps investors compare two or more companies that operate in the same industry, clarifying which stock could be overvalued or undervalued.
EMN trades in between DOW and LYB
On March 28, 2017, EMN was trading at a discount to DOW and at a premium to LyondellBasell. Historically, EMN has traded at a discount to Dow Chemical, but as DOW is expecting to complete a merger deal with DuPont—along with the completion of its integration of Corning—DOW expects to see higher earnings going forward.
Meanwhile, EMN and LYB are struggling to achieve revenue growth. EMN’s revenue is projected to grow in 2017, as compared to 2016, primarily driven by the price hike in its products. EMN has guided its adjusted EPS (earnings per share) to grow at a rate of 8%–10% in 2017, as compared to 2016.
Notably, investors can hold Eastman Chemical indirectly by investing in the ProShares Ultra Basic Materials (UYM), which had 1.4% of its holdings in EMN on March 28, 2017.