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What Eastman Chemical’s Valuations Suggest

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Eastman Chemical’s forward PE

After looking at analysts’ views and recommendations, we’ll look into Eastman Chemical’s (EMN) latest valuation in comparison to its peers. As of September 12, 2017, EMN’s one-year forward price-to-earnings multiple stands at 10.85x, while peer LyondellBasell’s (LYB) one-year forward PE multiple stands at 10.15x.

The forward PE is one of the many valuation tools that consider forward earnings. This could be a useful tool for investors to compare between two or more companies that are operating in the same industry and compare which company is overvalued and which company is undervalued. This also tells how much the investors are paying for a stock per dollar of its expected earnings over the next 12 months.

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Eastman valuations edge past peers

At present, EMN is trading at a premium compared to its peer LyondellBasell with a marginal difference. After EMN reporting two quarters of strong earnings, analysts are expecting the company to post earnings per share of $7.52 for fiscal 2017, an increase of 11.2% on a year-over-year basis. The earnings growth is expected to be driven by better cost control measures and improved sales. For fiscal 2018, analysts forecast EMN’s earnings to be at $8.15, which is 8.4% above fiscal 2017 earnings.

In contrast, analysts are projecting LYB’s earnings per share to be at $9.89 in fiscal 2017, an increase of 6.8% over fiscal 2016 earnings. However, for fiscal 2018, the earnings growth is expected to fall to $9.08 per share, representing a fall of 8.2% over fiscal 2017 earnings. Since EMN’s expected earnings growth is stronger than LYB’s, EMN stock is trading at a premium.

Investors looking to hold EMN indirectly can invest in the ProShares Ultra Basic Materials (UYM), which invests 1.3% of its portfolio in EMN. The other holdings of the fund include Praxair (PX) and Monsanto (MON), which have weights of 3.9% and 5.2%, respectively, as of September 12, 2017.

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