Eastman Chemical Company (EMN): This Chemical Business Is Relatively Cheap

Page 1 of 2

Eastman ChemicalSince September 2011, shares of Eastman Chemical Company (NYSE:EMN) have gained more than 110%, from $33.50 per share to more than $71 per share. The stock is in the portfolios of many investors, including Leon Cooperman, Ray Dalio and Jeremy Grantham. Recently, Barron’s featured Eastman Chemical Company (NYSE:EMN), believing that with the Solutia acquisition Eastman Chemical’s share price could experience a 35% rise to around $96 per share. Let’s take a closer look to determine whether or not we should invest in Eastman Chemical at its current price.

The chemical business legacy of George Eastman

Eastman Chemical was founded in 1920 with the sole purpose of producing chemicals for Eastman Kodak’s photographic business. Interestingly, George Eastman never knew that of his two connected businesses, one was going to be obsolete and the other would prosper over time.

Currently, Eastman Chemical Company (NYSE:EMN) has more than 40 manufacturing sites in 16 countries, operating in five main business segments: Additives and functional products, adhesives and plasticizers, advanced materials, fibers and specialty fluids and intermediates.

Most of its operating earnings, $385 million, or 29.6% of the total operating earnings, are generated form the fibers segment. The additives and functional products and the specialty fluids and intermediates both ranked second, with around $285 to $288 million in operating income, respectively, in 2012.

High leverage but low cost and long maturities

The $3.4 billion acquisition of Solutia at the beginning of 2012 seems to be a good strategic move, giving Eastman Chemical Company (NYSE:EMN) access to the fast-growing emerging markets, especially China. To fund the acquisition, Eastman Chemical had issued around $3.6 billion in debt, including a $1.2 billion term loan and $2.4 billion in senior unsecured notes. The company is expected to repay most of its loan this year.

In the beginning of 2012, Fitch commented that Eastman Chemica’s credit metrics would be strengthened thanks to the debt reduction and operating income growth. As of March, it had $3.1 billion in equity, $178 million in cash and as high as $4.8 billion in long-term debt. However, most of its borrowings came in at a low cost. Around $1 billion was in the 3% debentures due 2015, $893 million was the 3.6% notes due 2022 and $950 million was the credit facility borrowing.

In 2012, Eastman Chemical Company (NYSE:EMN) generated around $5.38 in EPS. Looking forward, its EPS could reach around $8.00 per share, including Solutia’s operating results. Moreover, after funding organic growth, its free cash flow was expected to be more than $2 billion in the period of the 2012 through 2015 period.

Eastman Chemical Company (NYSE:EMN) is trading at $71 per share with a total market cap of around $11 billion. The market values Eastman Chemical at only 7.2 times its forward EV/EBITDA. (EV/EBITDA represents Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization. It reflects the market value, adjusted by the cash and debt, in relation with the cash flow generating ability of the company.)

The cheapest among other large chemical companies

Compared to its chemical peers including E I Du Pont De Nemours And Co (NYSE:DD) and Ecolab Inc. (NYSE:ECL), Eastman Chemical is the cheapest valued among the three companies. Ecolab is trading at around $84 per share, with the total market cap of nearly $28.9 billion. The market values Ecolab at a much higher valuation at 11.9 times its forward EV/EBITDA.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!