Celanese Corporation CE is expected to benefit from its productivity measures, investments in organic projects and strategic acquisitions amid a soft demand environment.
Shares of this leading chemical and specialty materials maker are down 17% year to date compared with the 9.2% decline of its industry.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Going in CE’s Favor?
Celanese is gaining from inorganic growth initiatives, productivity actions and investments in high-return organic projects. The company remains focused on executing its productivity programs that include implementation of a number of cost reduction capital projects.
Celanese expects to achieve gross savings of $200 million from its productivity actions in 2020. Notably, it has already achieved $135 million of this productivity target.
The company also expects to generate one-time cost savings of $30-$40 million this year through reductions in travel, manufacturing costs and other corporate function expense. Productivity actions are expected to lend support to its margins in 2020.
Celanese also continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies. The acquisitions of SO.F.TER., Nilit and Omni Plastics are expected to contribute to earnings expansion in the company’s Engineered Materials segment.
The recent buyout of Elotex also reinforces the company’s position in the vinyl acetate ethylene emulsions space. Celanese is progressing with the integration of the acquisition. The Elotex acquisition is expected to contribute to volumes in the Acetyl Chain segment this year.
Weak Demand a Concern
Celanese is exposed to a sluggish demand environment. The company, in the second quarter of 2020, saw weak demand across automotive, industrial applications and consumer appliances stemming from the pandemic. Soft demand, especially in the Western Hemisphere, hurt its volumes. Lower demand also contributed to a roughly 25% year-over-year decline in its revenues in the second quarter.
In the second quarter, the Engineered Materials segment witnessed lower volumes due to global automotive demand decline along with considerably weaker demand across industrial applications and consumer appliances. While the company is seeing some recovery in demand, softness is likely to persist in the third quarter. Demand weakness may continue to weigh on its top line.
Celanese Corporation Price and Consensus
Celanese Corporation price-consensus-chart | Celanese Corporation Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include Barrick Gold Corporation GOLD, Yamana Gold Inc. AUY and Eldorado Gold Corporation EGO.
Barrick Gold has a projected earnings growth rate of 80.4% for the current year. The company’s shares have gained around 45% in a year. It currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Yamana Gold has a projected earnings growth rate of 76.9% for the current year. The company’s shares have rallied roughly 61% in a year. It currently carries a Zacks Rank #2 (Buy).
Eldorado Gold has an expected earnings growth rate of 2,325% for the current year. The company’s shares have gained around 13% in the past year. It presently carries a Zacks Rank #2.
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