Here's Why You Should Hold Onto Eastman Chemical (EMN) for Now

Zacks Equity Research

25 June 2024 at 7:54 am·3-min read

Eastman Chemical Company EMN is benefiting from cost-cutting and productivity actions as well as its innovation-driven growth model amid challenges from soft demand in certain markets.

Shares of this leading chemical maker are up 24.7% over the past year compared with a 4.8% decline of its industry.

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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

Cost & Pricing Actions, Innovation Drive EMN

Eastman is gaining from its actions to manage costs. It is expected to benefit from lower operating costs from its operational transformation program in 2024.

EMN is taking action to keep its manufacturing and administrative costs in control. It achieved cost savings of around $200 million in 2023, net of inflation. Pricing initiatives and lower raw material and energy costs are also expected to support the company’s bottom line. The company plans to maintain pricing discipline and improve asset utilization throughout the year.

Moreover, Eastman's goal is to increase new business revenues by utilizing its innovation-driven growth strategy. Its sales volumes are expected to be supported by the innovation and market development initiatives.

The company is also expected to gain from the revenues and earnings generated by its Kingsport methanolysis facility in 2024, mostly in the second half of the year. The facility is expected to deliver roughly $75 million of incremental EBITDA growth in 2024.

Eastman Chemical also remains focused on maintaining a disciplined approach to capital allocation with an emphasis on debt reduction. It returned $526 million to shareholders in 2023 through dividends and share repurchases. It also raised its dividend for the 14th consecutive year. Eastman expects to generate cash flow from operating activities of roughly $1.4 billion for 2024. It expects to repurchase shares worth $200-$300 million in 2024.

Demand Weakness a Concern

EMN is exposed to headwinds from weak demand and continued de-stocking in certain markets. It saw soft demand and de-stocking for its consumer durables, building & construction, agriculture, medical and consumables end markets in 2023. EMN also witnessed sustained customer inventory de-stocking in medical and agriculture end markets in the first quarter of 2024. Lingering effects from customer inventory de-stocking across certain markets are expected to adversely impact its performance.

The company, on its first-quarter call, said that it sees uncertain primary demand in key markets and regions through the remainder of 2024. It expects continued de-stocking in medical and agriculture in the second quarter of 2024. EMN also sees soft demand in building & construction in most regions and cautious customer behavior in consumer durables and electronics.

Eastman Chemical Company Price and Consensus

Eastman Chemical Company price-consensus-chart | Eastman Chemical Company Quote

Stocks to Consider

Better-ranked stocks in the basic materials space include Carpenter Technology Corporation CRS, Axalta Coating Systems Ltd. AXTA and ATI Inc. ATI.

Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). CRS beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, with the average earnings surprise being 15.1%. The company’s shares have soared roughly 90% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axalta Coating Systems, carrying a Zacks Rank #1, has a projected earnings growth rate of 26.8% for the current year. In the past 60 days, the consensus estimate for AXTA's current-year earnings has been revised upward by 5.9%. The company’s shares have gained roughly 10% in the past year.

ATI currently carries a Zacks Rank #1. ATI beat the Zacks Consensus Estimate in each of the last four quarters, with the average earnings surprise being 8.3%. The company’s shares have rallied around 35% in the past year.

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Cost & Pricing Actions, Innovation Drive EMN

Demand Weakness a Concern

Eastman Chemical Company Price and Consensus

Stocks to Consider

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