On Tuesday, Piper Sandler adjusted its price target for Eastman Chemical (NYSE:EMN) shares, listed on the New York Stock Exchange (NYSE:EMN), to $102.00, a decrease from the previous $105.00. The firm maintained a Neutral rating on the stock.
The revision reflects a cautious stance towards the company's financial outlook amid expectations of slower economic growth. Additionally, Eastman Chemical's increased investment in its recycling capabilities was highlighted as a factor in the adjustment.
The analyst from Piper Sandler indicated that while Eastman Chemical’s focus on expanding its recycling footprint is likely to contribute positively to earnings over time, it also requires a substantial capital expenditure.
This financial commitment could potentially limit the company’s flexibility in cash allocation. The price target reduction is also attributed to a change in the valuation multiple, which is now set at 8.1 times the projected 2026 enterprise value to EBITDA (EV/EBITDA), down from the prior multiple of 8.6 times.
The rationale behind the lower valuation multiple is tied to the use of higher 2026 earnings for valuation purposes. It is noted that market multiples for cyclical companies tend to decrease as earnings increase and as they approach the midpoint of the economic cycle. This pattern is consistent with general market behavior, where investors may assign lower multiples to cyclical firms' earnings as they normalize following peak levels.
Despite the reduction in the price target, Eastman Chemical's stock rating remains unchanged at Neutral. This suggests that Piper Sandler’s view on the stock is one of caution, acknowledging potential growth in earnings from the company’s strategic initiatives while also considering the economic headwinds and significant investments that could affect its financial flexibility.
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