Is Eastman Chemical Undervalued Compared to Its Peers?



Eastman Chemical’s one-year forward PE multiple

As of November 28, Eastman Chemical (EMN) was trading at a one-year forward PE multiple of 8.7x, which is well below the two-year average of 10.5x. Celanese (CE) and Westlake Chemical (WLK) were trading at one-year forward PE multiples of 9.0x and 8.3x, respectively.

The forward PE multiple is a valuation method that considers a company’s future earnings estimates.

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Is Eastman undervalued?

So far, Eastman Chemical has managed to beat analysts’ expectations in all three of its quarterly earnings in 2018. However, increased raw material prices are still a concern. The sell-off in the US market, foreign currency challenges, and weakness in the acetate tow sales volumes resulted in a significant correction in Eastman Chemical’s stock price.

Eastman Chemical continued to increase its organic growth by acquiring new client orders, which has been encouraging. Eastman Chemical added capacity with its new manufacturing facility, which would drive future growth. As a result, analysts expect Eastman Chemical’s 2019 adjusted EPS to be $9.19, which is 8.8% growth compared to the adjusted EPS projection in fiscal 2018.

Analysts expect Celanese’s adjusted EPS to grow 1.7%. Westlake Chemical’s adjusted EPS is expected to decline 2.0%. With Eastman Chemical having higher EPS growth, the stock appears to be undervalued compared to its peers.

Investors could get indirect exposure to Eastman Chemical by investing in the iShares U.S. Basic Materials ETF (IYM), which invests 3.4% of its portfolio in Eastman Chemical. The fund also invests 14% of its holdings in Linde (LIN) as of November 28.


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