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On Friday, Morgan Stanley (NYSE:MS) reiterated its Overweight rating on Eastman Chemical (NYSE:EMN) with a price target of $115.00. Stifel analysts highlighted the loss of a $375 million grant from the Department of Energy, which was intended for the thermal energy/battery component of Eastman’s Longview, Texas molecular recycling facility. Despite this setback, Eastman Chemical is expected to continue with the project, albeit with a potentially reduced scope to align capital expenditures with expected returns. For detailed analysis of EMN and over 1,400 other stocks, including comprehensive Fair Value assessments and financial health scores, check out InvestingPro.
The loss of the government grant places Eastman on the "cancel" list, rather than the "retain" list, and analysts see a very low probability of this decision being reversed. The company is anticipated to explore any remaining options to retain the grant, but expectations for success are minimal. The start of the Longview project may be delayed as the company reassesses its plans.
Eastman Chemical had planned to build the Longview facility before the Inflation Reduction Act and any potential Department of Energy funding were considered. The grant was expected to cover more than just the thermal energy/battery aspect of the plant. Despite the current challenges, including increased capital expenditures and decreased demand compared to 2021, Eastman is not expected to cancel the project.
Moreover, the company had a take/pay contract with PepsiCo (NASDAQ:PEP) for recycled PET (rPET), which was to be supplied from the Longview plant. While the grant loss affects this arrangement, Eastman Chemical also has an rPET line at its Kingsport plant, which could fulfill the contract with PepsiCo. Analysts believe that Eastman will still economically supply PepsiCo with rPET, whether from the Longview or Kingsport facility. According to InvestingPro, PepsiCo maintains impressive gross profit margins of 55% and has raised its dividend for 52 consecutive years, demonstrating strong financial stability despite trading near its 52-week low of $127.75.
In other recent news, PepsiCo has completed the acquisition of poppi, a prebiotic soda brand, for $1.95 billion. This move aligns with PepsiCo’s strategy to diversify its portfolio with health-conscious offerings. Additionally, PepsiCo announced a 5% increase in its quarterly dividend, raising it to $1.4225 per share, reflecting the company’s commitment to delivering shareholder value. In financial performance, PepsiCo’s first-quarter 2025 earnings revealed a slight miss in earnings per share (EPS) at $1.48, compared to the expected $1.51, though revenue surpassed forecasts at $17.92 billion.
Furthermore, Evercore ISI has revised PepsiCo’s stock price target to $140 from $155, maintaining an In Line rating. This adjustment follows observed challenges, particularly within the Frito-Lay North America segment. Despite these hurdles, PepsiCo remains focused on maintaining low single-digit revenue growth for the year. The company has also adjusted its full-year guidance due to new tariffs and macroeconomic uncertainties. These developments underscore the various factors influencing PepsiCo’s current and future financial landscape.
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