Celanese’s forward PE
After reviewing analysts’ recommendations in the previous part, we’ll look into the latest valuations of Celanese (CE) and compare them with peers. As of June 29, 2017, Celanese’s one-year forward PE (price-to-earnings) multiple stood at 12.20x, while peer Eastman Chemical’s (EMN) multiple was at 10.80x.
Forward PE is one of the relative valuations that considers future earnings. The metric is useful when comparing two or more companies operating in the same industry to see which stock is overvalued and undervalued. Forward PE tells how much investors are paying for a stock per dollar of expected earnings in the next 12 months.
Celanese trades at a premium
At present, Celanese is trading at a premium to its peer. After Celanese posted better-than-expected 1Q17 earnings, analysts expect CE’s fiscal 2017 earnings to be at $7.28 per share, implying a growth rate of 17.6%. Analysts expect CE’s EPS growth to be at 10.6% in fiscal 2018. Further, the acquisitions of Nilit’s nylon compounding division, its joint venture with BlackRock (BX), and the increase of its stake in the IBN-SINA joint venture are expected to drive growth.
On the other hand, analysts expect Eastman’s earnings to rise 10.5% for fiscal 2017 and 6.4% in fiscal 2018, which is lower than Celanese’s growth rate. Thus, Celanese at present is trading at a premium to Eastman Chemical.
Investors can indirectly hold Celanese by investing in the Vanguard Materials ETF (VAW), which invests 1.6% of its portfolio in Celanese. The top holding of the fund is Dow Chemical (DOW), which has a weight of 9.0% as of June 29, 2017.