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Here's Why You Should Retain Celanese (CE) in Your Portfolio

Celanese Corporation CE is expected to gain from its cost and productivity actions, investments in high-return organic projects and synergies of acquisitions. However, it faces challenges from weak demand and customer destocking in certain end markets and pricing pressures.

The company’s shares have gained 44.5% in a year against an 8.1% decline of its industry.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

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

Celanese Gains on Acquisitions & Productivity

Celanese is benefiting from its productivity measures, investments in organic projects and strategic acquisitions amid headwinds from demand softness and customer destocking in certain end markets.

The company is actively pursuing acquisitions, which are providing it opportunities for additional growth, investment and synergies. The acquisition of the majority of DuPont’s Mobility & Materials (“M&M”) business has allowed Celanese to enhance its growth in high-value applications. M&M contributed $120 million to the operating EBITDA of the Engineered Materials segment in fourth-quarter 2023. Celanese expects incremental M&M synergies of at least $150 million during 2024.

The acquisitions of SO.F.TER., Nilit and Omni Plastics are also expected to contribute to earnings expansion in the company's Engineered Materials segment. The Elotex acquisition also strengthened the company’s position in the vinyl acetate ethylene emulsions space. Moreover, the purchase of Exxon Mobil's Santoprene business broadened the company’s portfolio of engineered solutions and enables it to offer a wider range of functionalized solutions to targeted growth areas, including future mobility, medical and sustainability.

Celanese also remains focused on executing its productivity programs that include the implementation of a number of cost reduction capital projects. Productivity actions are expected to support to its margins in 2024.

The company is proactively implementing strategic initiatives recognizing the volatility and unpredictability of the current market landscape and competitive environment. These actions involve strengthening its commercial teams, aligning production and inventory levels with prevailing demand, implementing cost-saving measures and optimizing cash flow. These endeavors are expected to result in robust cash generation and a continuation of earnings growth.

Moreover, Celanese continues to generate strong cash flows and is focused on boosting shareholders’ value and deleveraging its balance sheet. It generated record operating cash flow of $1.9 billion and free cash flow of $1.3 billion in 2023. CE returned $305 million to shareholders through dividend payouts during 2023. Moreover, the company reduced its net debt by $1.3 billion in 2023. It expects to continue reducing its net debt in 2024. The company projects its total annual debt servicing costs to decline by roughly $50 million on a year-over-year basis in 2024 as a result of its debt paydown and debt optimization efforts.

Weak Demand & Pricing Ail

Celanese faces headwinds from demand softness and customer destocking in some of its end markets. It witnessed weak demand in several end markets and destocking in 2023. Soft demand led to inventory reduction and deferral of orders by the company’s customers. Demand remains weak in industrial and consumer goods end markets. The challenging conditions are likely to continue over the near term. Weaker demand recovery globally and destocking are likely to weigh on the company’s volumes in the first quarter of 2024.

The company is also being challenged by significant competition. Competitive pressure is hurting its prices. Significant competitive pricing pressure resulted in a 10% year-over-year decline in its pricing in 2023.

Celanese Corporation Price and Consensus

 

Celanese Corporation Price and Consensus
Celanese Corporation Price and Consensus

Celanese Corporation price-consensus-chart | Celanese Corporation Quote

Stocks to Consider

Better-ranked stocks worth a look in the basic materials space include Denison Mines Corp. DNN, Carpenter Technology Corporation CRS and Innospec Inc. IOSP.

Denison Mines beat the Zacks Consensus Estimate in each of the last four quarters, with the average earnings surprise being 300%. The company’s shares have soared roughly 105% in the past year. DNN carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Carpenter Technology’s current fiscal-year earnings is pegged at $3.95, indicating a year-over-year surge of 246.5%. CRS beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, with the average earnings surprise being 12.2%. The company’s shares have rallied around 75% in the past year. CRS currently carries a Zacks Rank #2 (Buy).  

The consensus estimate for Innospec’s current-year earnings is pegged at $6.72 per share, indicating a 10.3% year-over-year rise. IOSP, carrying a Zacks Rank #2, beat the consensus estimate in each of the last four quarters, with the average earnings surprise being 10.5%. The company’s shares have gained around 17% in the past year.

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