Eastman Chemical (EMN) Stock Up 11% in 3 Months: Here's Why

Zacks Equity Research
·4-min read

Eastman Chemical Company’s EMN shares have gained 10.7% over the past three months. The chemical maker has also outperformed its industry’s rise of 6% over the same time frame. Moreover, it has topped the S&P 500’s 2.1% rise over the same period.

Let’s take a look into the factors that are driving this Zacks Rank #2 (Buy) stock.

What’s Favoring the Stock?

Forecast-topping earnings performance in the fourth quarter and upbeat outlook for 2021 have contributed to the gain in the company's shares. Eastman Chemical’s adjusted earnings of $1.69 per share for the fourth quarter rose from $1.42 in the year ago-quarter and trounced the Zacks Consensus Estimate of $1.53. Revenues of $2,186 million also surpassed the Zacks Consensus Estimate of $2,142 million.

The company, in its fourth-quarter call, said that it expects adjusted earnings per share for 2021 to be 20-30% higher than the 2020 level.

Eastman Chemical is gaining from its innovation-driven growth model, cost-management actions and improved demand across its end markets from the coronavirus-led downturn.

The company is taking an aggressive approach to cost management in the wake of the pandemic. These initiatives include reduction of discretionary spending. The company reduced costs by roughly $150 million in 2020. It is also on track with its cost-cutting actions in 2021, which are expected to contribute to its earnings per share.

Moreover, the company is seeing a recovery across building & construction, automotive and consumer durables markets. Continued recovery in these markets are expected to drive its sales volumes in 2021.

Eastman Chemical also remains focused on growing new business revenues from innovation. In particular, the company’s Advanced Materials segment has a number of products that are driving new business revenues.

Moreover, Eastman Chemical remains committed to maintain a disciplined approach to capital allocation, with an emphasis on financing its dividend and debt reduction. The company returned $418 million to shareholders through share repurchases and dividends during 2020. It has also hiked its dividend for the 11th consecutive year. Moreover, the company reduced net debt by more than $600 million in 2020.

The company is also taking actions to boost its cash flows. These include reduction of capital expenditure. The company generated cash from operating activities of $1.5 billion and free cash flow of $1.1 billion in 2020. It also expects to generate more than $1 billion of free cash flow this year.

Earnings estimates for Eastman Chemical have also been going up over the past two months. The Zacks Consensus Estimate for 2021 has increased around 9.1% while the same for first-quarter 2021 has gone up 17.2%. The favorable estimate revisions instill investor confidence in the stock.

Eastman Chemical Company Price and Consensus

Eastman Chemical Company Price and Consensus
Eastman Chemical Company Price and Consensus

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

Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Fortescue Metals Group Limited FSUGY and BHP Group BHP, Impala Platinum Holdings Limited IMPUY.

Fortescue has a projected earnings growth rate of 95.4% for the current fiscal. The company’s shares have surged around 223% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BHP Group has a projected earnings growth rate of 69.3% for the current fiscal year. The company’s shares have shot up around 119% in a year. It currently carries a Zacks Rank #1.

Impala Platinum has an expected earnings growth rate of 187% for the current fiscal. The company’s shares have rallied around 145% in the past year. It currently carries a Zacks Rank #1.

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