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Eastman Chemical’s Debt-to-Equity Ratio Will Increase

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Eastman Chemical’s debt

At the end of the third quarter, Eastman Chemical’s (EMN) total debt stood at $6.62 billion. The company’s debt increased after declining for three years. Since 2012, Eastman Chemical’s debt has grown at a compound annual growth rate of ~7.0%. The debt includes long-term borrowings and the borrowings due to be paid within one year.

After the third quarter, Eastman Chemical raised $800 million by issuing new notes. Eastman Chemical intends to use the net proceeds from the issued notes to redeem its 5.5% notes early. The notes, which are are due in 2019, have an outstanding principal amount of $250 million. So net-to-net, Eastman Chemical’s debt by the end of the fourth quarter could be ~$7.2 billion—a four-year high.

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Debt-to-equity ratio

At the end of the third quarter, Eastman Chemical’s debt-to-equity ratio stood at 1.12x. With the increased debt, the company’s debt-to-equity ratio at the end of fiscal 2018 could be ~1.20x. LyondellBasell (LYB), Westlake Chemical (WLK), and Huntsman (HUN) have debt-to-equity ratios of 0.78x, 0.48x, and 0.84x, respectively. Eastman Chemical has the highest debt-to-equity ratio among its selected peers. Eastman Chemical’s ratio is also higher than the industry average of 0.97x. The company’s strong free cash flows could help it repay some of the debt early. Paying the debt early would improve the company’s debt-to-equity position. Eastman Chemical would be on par or better than its peers.

Next, we’ll discuss Eastman Chemical’s free cash flow trend. Investors could hold Eastman Chemical indirectly by investing in the Invesco S&P 500 Equal Weight Materials ETF (RTM), which has invested 3.6% in Eastman Chemical as of November 28.

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