On Monday, JPMorgan shifted its stance on Celanese Corporation (NYSE:CE) stock, upgrading it from Underweight to Neutral. However, the firm also adjusted the price target downward to $130.00 from the previous $156.00.
The revision followed a closer examination of the company's second-quarter earnings, which revealed that performance issues were not as severe as initially perceived.
Celanese faced challenges in the quarter, including low operating rates in its domestic acetic acid and vinyl acetate monomer (VAM) operations, largely due to reduced demand from the coatings industry and complications from raw material supply issues.
The company reported that these difficulties led to a $25 million hit to Acetyl Chain EBIT, along with an additional $10 million impact from lower-than-expected spot sales in products such as acetic acid, VAM, and acetate tow.
Despite the setbacks in the second quarter, Celanese is anticipated to improve its operating rates in the Acetyl Chain during the third quarter of 2024. The company has largely resolved its supply problems and forecasts a reduced operating penalty in the range of $5 million to $10 million for the third quarter.
Reflecting on the recent earnings and the company's outlook, JPMorgan revised its earnings per share (EPS) estimate for Celanese for the year 2024, lowering it from $11.30 to $10.55. This adjustment accounts for the $0.63 EPS shortfall experienced in the second quarter.
Additionally, the firm trimmed its EPS forecast for 2025 from $13.60 to $13.35, citing weaker demand conditions as the rationale behind the decreased projection.
In other recent news, Celanese Corporation held its second quarter 2024 earnings call, maintaining a steady outlook despite market pressures. The company anticipates moderate growth in volumes and margins in the upcoming quarter, with particular growth in the automotive sector, especially in China. The company also expects an uplift from ending the force majeure in the current quarter, which had an estimated cost impact of $35-40 million.
The company's earnings have been impacted by price pressure on raw nylon polymer and increased ethylene costs. However, Celanese sees opportunities for improvement in 2025, including synergies, interest rates, and reduced cash taxes and interest. The medical business remains stable, with growth outside of implants.
These recent developments indicate that Celanese is adapting to market conditions and focusing on growth opportunities and operational flexibility. Despite challenges such as supplier issues and margin pressure, the company remains optimistic about its strategic initiatives and growth prospects.
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