Reassessing Valuation After a Post-Earnings Selloff and Softer Demand Signals
Eastman Chemical (EMN) just reminded investors that earnings still rule the story, with its third quarter miss on revenue and profit putting the focus squarely on demand softness and management’s response.
See our latest analysis for Eastman Chemical.
The latest earnings disappointment has only added to a tough stretch for Eastman Chemical, with a roughly 31 percent year to date share price decline and a near 38 percent one year total shareholder return loss underscoring fading momentum despite cost saving plans and a modest dividend increase.
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With the share price down sharply yet trading at a sizable discount to analysts’ targets and some valuation models, the key question now is whether Eastman Chemical is a contrarian value play or if markets already reflect its future growth.
With Eastman Chemical last closing at $60.66, the most followed narrative sees materially higher fair value, framing the sell off as a potential mispricing.
Implementation of cost reduction initiatives ($75M $100M in ongoing savings), strategic asset optimization (such as the ethylene to propylene project), and disciplined portfolio management is likely to lead to improving net margins and higher ROIC, especially as end market demand recovers and utilization rates normalize.
Curious how modest top line expectations can still justify a richer future earnings multiple and higher fair value than today’s price suggests? Read on to see what assumptions are doing the heavy lifting in this narrative.
Result: Fair Value of $72.76 (UNDERVALUED)
Have a read of the narrative in full and understand what’s behind the forecasts.
However, persistent trade tensions and slower than expected adoption of Eastman’s recycled materials could delay margin expansion and undermine the undervaluation thesis.
Find out about the key risks to this Eastman Chemical narrative.
If you are not fully convinced by this view or would rather dig into the numbers yourself, you can craft a personalized narrative in just a few minutes: Do it your way.
A great starting point for your Eastman Chemical research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.
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