Company Reports

Eastman Chemical's second-quarter results reflected our view for the year of a demand recovery following the economic slowdown in 2023 that weighed on profits. As demand stabilized, Eastman generated a modest 5% year-on-year adjusted operating profit growth. With our outlook largely unchanged, we're maintaining our $125 fair value estimate for Eastman. Our narrow-moat rating is also unchanged.

Through acquisition and internal development, Eastman Chemical owns a solid portfolio of specialty chemicals that are used in safety glass, window tinting, and specialty plastics, all of which offer a solid long-term growth profile. To expand its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments in research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

Through acquisition and internal development, Eastman Chemical owns a solid portfolio of specialty chemicals that are used in safety glass, window tinting, and specialty plastics, all of which offer a solid long-term growth profile. To expand its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments in research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

Eastman Chemical's first-quarter results showed demand was recovering in line with our outlook for the cadence of the year. Volumes rose 3% versus the prior-year quarter, following inventory destocking that weighed on 2023 results. In 2024, we think Eastman will generate higher profits, as customer inventory destocking will be largely completed by the end of the second quarter.

After updating our model to incorporate Eastman Chemical's fourth-quarter results, we maintain our $125 fair value estimate. Our narrow moat rating is also unchanged. Eastman's results were in line with our view that the customer inventory destocking that weighed on 2023 volume and profit would slow in the fourth quarter and largely be complete by mid-2024. During the quarter, total volume was down 2% versus the prior-year quarter, a sign of improving demand versus the 9% volume decline for the year.

Through acquisition and internal development, Eastman Chemical owns a solid portfolio of specialty chemicals that are used in safety glass, window tinting, and specialty plastics, all of which offer a solid long-term growth profile. To expand its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments in research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

Through acquisition and internal development, Eastman Chemical owns a solid portfolio of specialty chemicals. Its specialty chemicals include plastics and components used in safety glass, window tinting, and specialty plastics, all of which offer a solid long-term growth profile. To increase its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments in research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

Eastman's third quarter showed mixed results that changed our near-term outlook but confirm our long-term view. Having updated our model for lower near-term results, we trimmed our Eastman fair value estimate to $125 per share from $130. Our narrow moat rating is unchanged.

Through acquisition and internal development, Eastman Chemical owns a solid portfolio of specialty chemicals. Its specialty chemicals include plastics and components used in safety glass, window tinting, and specialty plastics, all of which offer a solid long-term growth profile. To increase its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments in research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

In 2022, battery electric vehicles represented nearly 10% of global auto sales, up from a little less than 6% in 2021. Much of the growth occurred in China, which has been a leader in EV sales over the past decade. However, with national EV subsidies in China expiring in 2022 and far lower sales in the U.S. and Europe, the market questions if EV sales can continue to grow without subsides.

After updating our model to incorporate Eastman Chemical's second-quarter results, we maintain our $130 fair value estimate and narrow moat rating.

Through acquisition and internal development, Eastman Chemical owns a solid portfolio of specialty chemicals. Its specialty chemicals include plastics and components used in safety glass, window tinting, and specialty plastics, all of which offer a solid long-term growth profile. To increase its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments in research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

After incorporating Eastman Chemical's first-quarter results into our valuation model, we maintain our $130 per share fair value estimate. Our narrow moat rating is also unchanged.

Through acquisition and internal development, Eastman owns a solid portfolio of specialty chemicals. Eastman's specialty chemicals include plastics and components used in safety glass, window tinting, and specialty plastics, all of which offer a solid growth profile. To increase its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments into research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

We maintain our $130 per share fair value estimate for Eastman following the company's fourth-quarter results. Our narrow moat rating is also unchanged.

Through acquisition and internal development, Eastman owns a solid portfolio of specialty chemicals. Eastman's specialty chemicals include plastics and components used in safety glass, window tinting, and specialty plastics, all of which offer a solid growth profile. To increase its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments into research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

We have two key takeaways following third-quarter results from the three narrow-moat specialty chemical producers we cover: Celanese, DuPont, and Eastman. First, specialty chemical producers' pricing power is intact. The specialty businesses of Celanese, DuPont, and Eastman all saw price increases at or above the level of cost inflation. This is consistent with our view that specialty chemical producers can pass along cost inflation. As cost inflation moderates in 2023, we expect the price increases will largely remain in place. On its own, this would allow producers to recover profits.

Eastman Chemical's third-quarter results were generally in line with our outlook for the year. With minimal changes to our forecast, we maintain our $130 fair value estimate. Our narrow moat rating is also unchanged.

Through acquisition and internal development, Eastman owns a solid portfolio of specialty chemicals. Eastman's specialty chemicals include plastics and components used in safety glass, window tinting, and specialty plastics, all of which offer a solid growth profile. To increase its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments into research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

Shares of Celanese, DuPont, and Eastman have plummeted this year as the market focuses on the near-term risks for the specialty chemicals industry. Cost inflation, a global recession, and a potential European natural gas shortage all threaten to erode profits in 2023. While these risks could weigh on near-term results, we think a smaller decline is more likely to occur, as reflected in our base-case forecasts.