On Thursday, JPMorgan adjusted its stance on Celanese Corporation (NYSE:CE) stock, a company engaged in the manufacture of acetyl products, by downgrading it from Neutral to Underweight. However, the firm raised the price target to $160 from the previous $135.
The downgrade comes after an assessment of Celanese's recent acquisition and financial leverage. The M&M acquisition from DuPont (NYSE:DD) has not met expectations in terms of return on assets, with its EBITDA contribution significantly underperforming. The analyst noted that Celanese's debt level is relatively high, with a trailing leverage ratio of five times.
The firm also highlighted that Celanese's stock valuation is currently at a premium compared to its closest competitor, Eastman, and its own historical trading multiples. This premium is seen despite the company facing potential risks associated with the global economic outlook, which could impact investor sentiment towards the stock.
Celanese's expansion plans for its operations in Clear Lake, Texas, are reportedly experiencing delays, pushing the expected completion from 2023 to the second quarter of 2024. These delays, along with scheduled turn-around activities, are anticipated to incur costs of approximately $55 million in 2024.
Despite these challenges, Celanese may see some short-term benefits due to plant outages at Lyondell, which could lead to increased domestic prices for acetic acid and VAM in the first quarter. However, these benefits are expected to diminish after April 2024.
JPMorgan's analysis concludes with a valuation perspective, noting that Celanese is trading at 9.7 times its estimated 2025 enterprise value to EBITDA, which is about one multiple point higher than Eastman. The estimated free cash flow yield for Celanese is projected to be around 8.3% for 2025.
InvestingPro Insights
In light of JPMorgan's recent rating adjustment for Celanese Corporation, a glance at some real-time data from InvestingPro provides additional context. The company's market capitalization stands at $19.11 billion, and it is trading at a P/E ratio of 9.47, which adjusts to 11.99 when looking at the last twelve months as of Q4 2023. This valuation comes as Celanese has shown a robust revenue growth of 13.1% over the same period, signaling a strong top-line performance.
Investors may find encouragement in Celanese's commitment to shareholder returns, as evidenced by its impressive track record of raising dividends for 14 consecutive years and maintaining dividend payments for 20 consecutive years. This is complemented by a dividend yield of 1.63% as of the latest data. Additionally, the stock has experienced a significant price uptick, with a 6-month total return of 42.07% and a 1-year total return of 64.95%, trading near its 52-week high. These figures suggest a robust performance despite the broader economic challenges.
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