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On Wednesday, RBC Capital Markets analyst Arun Viswanathan raised the stock rating for Eastman Chemical (NYSE:EMN) from Sector Perform to Outperform, while simultaneously reducing the price target to $91 from the previous $103. The adjustment reflects a mix of anticipated challenges and strategic financial growth, according to Viswanathan's analysis. Currently trading at $72.70, near its 52-week low of $70.90, InvestingPro data suggests the stock is in oversold territory, with a robust financial health score of "GOOD."
Viswanathan highlighted that Eastman Chemical could face headwinds due to tariffs, retaliatory trade measures, and potentially weaker durable goods demand. However, the firm's exposure to these risks is expected to be less than that of its peers, as Eastman Chemical is not a major exporter of plastics. The analyst projects approximately a one standard deviation percentage growth in EBITDA, driven by improvements in the Additives & Functional Products (AFP) segment and a $50 million contribution from the Kingsport site. This growth is anticipated to enable Eastman Chemical to achieve its full-year 2025 earnings guidance of $8.00 to $8.75 per share, albeit potentially at the lower end of this range.
Viswanathan has revised his estimates for Eastman Chemical's first-quarter and full-year 2025 EBITDA to $430 million and $1.85 billion, down from $436 million and $1.91 billion, respectively. The price target adjustment to $91 is based on an 8x enterprise value to EBITDA ratio, a decrease from the prior 8.5x ratio. The revision takes into account an added buffer for potential increases in natural gas prices and tariffs.
Despite the downward revisions, Viswanathan believes that Eastman Chemical's stock is trading below a reasonable valuation, indicating more than 20% implied upside to the new price target. Trading at a P/E ratio of 9.27x and showing strong free cash flow yields, InvestingPro analysis indicates the stock is currently undervalued. This assessment underpins the decision to upgrade the stock to an Outperform rating. The analysis suggests that, in light of these factors, Eastman Chemical presents a favorable investment opportunity relative to its current market price. For deeper insights into Eastman Chemical's valuation and 12+ additional ProTips, explore the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Eastman Chemical reported its fourth-quarter 2024 earnings, revealing an earnings per share (EPS) of $1.87, which exceeded analysts' expectations of $1.61. The company's revenue was slightly below forecasts, coming in at $2.25 billion against a projected $2.28 billion. Despite this revenue miss, the company demonstrated robust earnings growth of 22% for the full year 2024. In a strategic financial move, Eastman Chemical issued $250 million in new notes due 2029, with proceeds intended for general corporate purposes such as working capital and debt repayment.
Analysts from Citi upgraded Eastman Chemical's stock from Neutral to Buy, citing the company's cost reduction strategies and improved operating performance. However, Citi adjusted its price target from $105.00 to $101.00, reflecting a more cautious valuation amidst economic uncertainties. Meanwhile, Mizuho (NYSE:MFG) Securities also upgraded the stock to Outperform, setting a price target of $105.00, driven by Eastman Chemical's promising earnings trend and strategic advantages in the U.S. market. KeyBanc Capital Markets raised its price target for Eastman Chemical to $128.00, maintaining an Overweight rating due to the company's strong fourth-quarter performance and anticipated earnings per share growth.
Eastman Chemical's strategic initiatives, particularly in sustainable materials and circular plastics, are gaining traction, with the company achieving modest profitability in this innovative segment. The company's diversified product portfolio, with significant exposure to the U.S. market, continues to be a strategic advantage. These developments reflect a strong outlook for Eastman Chemical, supported by ongoing strategic projects and financial maneuvers.
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