4 Reasons Eastman Chemical (EMN) Can Fill The Valuation Gap - Jefferies
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Jefferies analyst, Lawrence Alexander, reiterated his Buy rating on shares of Eastman Chemical (NYSE: EMN) noting the company's relatively wide discount on both a NTM P/E basis (38% below the S&P 500 vs. 20% in mid-2014) and on NTM EV/EBITDA (2.3x NTM EBITDA vs. 1.1x).
The discount reflects structural concerns even more than cyclical risks: we highlight 4 transitions that could address these concerns even in the absence of GDP acceleration or a step-up in oil prices:
4 Transitions To Watch: 1/ The near-term transition to a balanced approach for deleveraging (down to ~2.5x net debt/EBITDA) and buybacks, coupled with medium-term discipline on M&A (both scale and expected returns), should allay concerns on strategic whipsaws; 2/ If CI can validate >10% margins once the hedges roll off, it would go a long way to allay concerns on the commoditized product lines; 3/ Lifting A&FP and AM to 80% of the portfolio (doable if innovation sustains growth 100-200bps above GDP) should address concerns on mix (now an execution story on a well-established case); and 4/ Commercial launches of new cellulose derivatives, possibly as early as 2017, could allay concerns on the end-game for acetate tow.
No change to the price target of $88.
Shares of Eastman Chemical closed at $71.26 yesterday.
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