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Here's Why You Should Retain Eastman (EMN) in Your Portfolio

Eastman Chemical Company EMN is gaining from cost-cutting and productivity actions as well as its innovation-driven growth model amid certain headwinds, including higher raw material, energy and logistics costs. Consumer de-stocking and unfavorable currency movements are also hurting its performance.

The company’s shares are down 27.8% over the past year compared with the 7% 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.

What’s Favoring EMN?

EMN is gaining from its actions to manage costs. The company is expected to benefit from lower operating costs from its operational transformation program. The company incurred lower manufacturing and maintenance costs in 2022. It was able to offset $1.3 billion in inflation from higher raw material, energy and distribution costs through price increases in 2022. It also expects cost savings of around $200 million in 2023.

EMN should gain from its strategic acquisitions. The growth initiatives have been greatly expedited by the acquisition of Solutia, which has provided excellent growth potential in the Asia-Pacific region. Additionally, the buyout of BP Plc’s aviation turbine engine oil business has enabled Eastman to better serve the needs of the global aviation industry. The acquisition of PremiumShield has strengthened company’s automotive base in North America, Europe and the Middle East and boosted its paint protection film pattern development capabilities.

Eastman's goal is to increase new business revenues by utilizing its innovation-driven growth strategy. Due to the company's competence in specialty products, it generated around $550 million in new business revenues from innovation in 2022. Sales volume is anticipated to increase in 2023 as a result of the innovation and market development initiatives. The company expects more than $600 million in new business revenues from innovation in 2023. In 2023, its specialty portfolio is expected to propel sales growth in key industries such as consumer durables, building & construction, and transportation.

A Few Concerns

Eastman witnessed headwinds from higher raw material and energy costs in 2022. Headwinds from cost inflation are likely to continue over the near term. Higher seasonal energy costs are also expected to continue in the first quarter. Elevated costs are likely to weigh on its bottom line in the first quarter.

The company is expected to face headwinds from unfavorable currency translations moving ahead. A stronger U.S. dollar is anticipated to have a $50 million annualized headwind in 2023, per the company.

Lingering effects from aggressive customer inventory de-stocking triggered by the manufacturing recession that started in the second half of 2022 are expected to adversely impact Eastman Chemical’s performance in the first quarter of 2023. The company expects consumer de-stocking to remain high for its consumer durables and building & construction end markets in the first quarter of 2023, with levels of de-stocking improving from the second quarter. The impacts of de-stocking are likely to weigh on the company’s top line.

Higher pension costs, interest expenses and variable compensation expenses are expected to hurt company’s bottom line in 2023. EMN estimates pension and other post-employment benefits headwind of around $110 million for 2023.

Eastman Chemical Company Price and Consensus

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

Stocks to Consider

Better-ranked stocks worth considering in the Basic Materials space include Steel Dynamics Inc. STLD, Nucor Corporation NUE and ATI Inc. ATI.

STLD carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its current-year earnings has been revised 5.2% upward in the past 60 days. STLD’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 11.3%. STLD has rallied roughly 22% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.

NUE carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for NUE’s current-year earnings has been revised 14.7% upward in the past 60 days. Its earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 7.7%. NUE has gained roughly 1% in a year.

ATI carries a Zacks Rank #2. The Zacks Consensus Estimate for ATI’s current-year earnings has been revised 4.4% upward in the past 60 days. Its earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 32.4%. ATI has gained roughly 36.8% in a year.

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Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report

Nucor Corporation (NUE) : Free Stock Analysis Report

ATI Inc. (ATI) : Free Stock Analysis Report

Eastman Chemical Company (EMN) : Free Stock Analysis Report

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