This week, Celanese's stockexperienced a downturn.
Celanese, the chemicals and specialty materials company with a ticker symbol CE, saw a significant drop of 22.7% in its share price during the week ending Friday morning. This descent followed a disappointing fourth-quarter earnings report released on Tuesday and uninspiring guidance for 2025 from management.
Now, let's dive into the reasons behind this dismal performance.
Celanese's Q4 Struggles
Chemical companies, known for their cyclical nature, can be deeply affected by weak demand conditions. This often results in volume deterioration and a price slump, subsequently reducing earnings. This is exactly what happened to Celanese in the fourth quarter.
The company experienced a 7% decline in volume, a 2% drop in pricing, and a 1% impact from currency movements. The cumulative effect of these factors led to a 10% decrease in sales. Consequently, the margin reduction caused a year-over-year decline in adjusted earnings before interest and taxation (EBIT) from $434 million in the fourth quarter of 2023 to $333 million in the fourth quarter of 2024.
Celanese is a prominent player in the manufacturing of engineered polymers and acetyl products, providing solutions for various sectors such as construction, automotive, electronics, paints, and consumer products. Unfortunately, several of these markets, including automotive and consumer electronics, have been grappling with the fallout of the recent industrial sector slowdown.
The Acquisition Factor
The acquisition of DuPont's mobility & materials business, which was finalized in late 2022 for $11 billion, has contributed to Celanese's exposure to these endmarkets. However, the acquisition has largely disappointed since its completion.
Looking Ahead for Celanese
CEO Scott Richardson expects "weakness in core end-markets like automotive, construction, paints, coatings, and industrial." Despite this challenge, the company remains profitable, cash-generative, and is currently trading at 9 times expected 2025 earnings, making it an attractive choice for investors with a tolerance for near-term risk.
The enrichment data reveals a mixed outlook for Celanese. According to analyst forecasts, the company's revenue is projected to grow by a modest 1.1% per annum over the next three years, lagging behind the industry's anticipated 4.6% growth rate annually. The stock is trading near its 52-week low, having dropped significantly by 45.8% over the past six months.
BMO Capital Markets reduced their price target for Celanese from $73.00 to $46.00 and maintained an Underperform rating, reflecting concerns about the company's near-term prospects. Nevertheless, the stock is considered undervalued at its current price.
Celanese is focusing on strategic initiatives like cost reduction, growth through the AC optionality model, and EM pipeline model, and deleveraging, aiming to surpass its targeted $75 million cost reduction goal and cease production at its Luxembourg Mylar Specialty Films operations.
The investor sentiment is pessimistic due to the company's revenue prospects, contributing to its depressed P/S ratio. However, Celanese is taking proactive steps to navigate the challenging market environment, presenting a cautious but potentially profitable opportunity for investors.
- To mitigate potential financial challenges, Celanese has set a goal of achieving a $75 million cost reduction by 2025.
- Despite the recent downturn in its stock price, Celanese still holds an attractive valuation, trading at 9 times expected 2025 earnings.
- The company's acquisition of DuPont's mobility & materials business in 2022 has exposed Celanese to market sectors that have been struggling, such as automotive and consumer electronics.
- Celanese's fourth-quarter earnings saw a decline due to a combination of factors including volume deterioration, price slumps, and currency movements, resulting in a 10% decrease in sales and a reduction in adjusted EBIT.
