On Thursday, Wells Fargo adjusted its outlook on Celanese Corporation (NYSE:CE), a global chemical and specialty materials company, by lowering the price target to $180 from the previous $195. The firm maintained its Overweight rating on the stock despite the revision. The change in the price target reflects concerns over demand and operational challenges the company is facing.
The analyst at Wells Fargo cited a more challenging second quarter of 2024 for Celanese than initially expected. This is attributed to the company's Force Majeure declaration for acetic acid and vinyl acetate monomer (VAM) production, coupled with weak underlying demand in the engineered materials (EM) segment. These factors compelled the firm to revise downward its second-quarter 2024, full-year 2024 earnings estimates, as well as its mid-cycle projections for the company.
Celanese is expected to fulfill customer orders despite the Force Majeure; however, the associated costs are anticipated to rise, which could negatively impact the margins within the acetyl chain (AC) segment. The analyst noted that the cost increase due to the Force Majeure situation would likely affect profitability in the short term.
Furthermore, the firm anticipates that the demand for Celanese's products in the global automotive, construction, and durable goods sectors may be weaker than previously expected. These industries are significant consumers of engineered materials, which are key offerings of Celanese.
In other recent news, Celanese Corporation has been experiencing significant production challenges due to supply chain disruptions. The global chemical and specialty materials company declared a force majeure, anticipating a 15-20% reduction in the second-quarter production of acetic acid and vinyl acetate monomer. Amid these developments, Jefferies, Deutsche Bank, and BofA Securities have adjusted their price targets for Celanese to $155, $160, and $144 respectively, due to concerns over increased unit costs and reduced margins. Citi maintained a Neutral rating on Celanese shares with a $167 price target.
Analysts from BMO Capital Markets, RBC Capital, and Baird also updated their outlook, with price targets raised to $158, $176, and $180 respectively. These adjustments reflect expectations of the company's resilience and potential for growth despite current challenges. Despite these difficulties, Celanese maintains its fiscal year 2024 guidance, with an EPS forecast of $11-12 and a second-quarter guidance set at $2.60-3.00 EPS.
InvestingPro Insights
As investors digest the revised outlook from Wells Fargo on Celanese Corporation, it's worth noting that the company boasts a strong track record of shareholder returns, having raised its dividend for 14 consecutive years. This is a testament to its financial resilience and commitment to returning value to shareholders. Additionally, Celanese trades at a low P/E ratio of 7.5, suggesting that the stock may be undervalued relative to its near-term earnings growth potential.
From a valuation standpoint, Celanese's PEG ratio as of the last twelve months leading up to Q1 2024 stands at an attractive 0.22, indicating that the stock may be priced favorably in the context of its earnings growth rate. Moreover, with a solid dividend yield of 2.02% as of the latest data, investors can benefit from a steady income stream, which might appeal to those seeking yield in their investment portfolios.
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