Is Celanese Stock A Buy?

Celanese Corporation (NYSE:CE) is a chemical materials company you may not have heard of but whose products you have likely consumed. It creates everything from food sweeteners and preservatives to engineered polymers and materials used in a wide variety of applications.

Although its products are broadly sold, is Celanese stock a Buy?

The raw materials company closed 2020 with a restructuring deal of Korea Engineering Plastics Co. The deal closes at the end of 2021, and Celanese’s 40 percent equity stake is sure to benefit.

But it also underperformed the industry, growing at 5.9 percent over the past year, versus the industry’s 9.2 percent. Its global footprint has both wins and losses across its market segments.

Does Celanese stock have a good base for a solid investment portfolio or if will it leave investors burned?

Celanese Is The World Leader In VAM Production

Celanese is a specialty materials company with a broad range of chemicals under its portfolio. It was founded in 1918 to produce airplane fabrics during World War I and created the world “Celanese,” a portmanteau of “cellulose” and “ease,” to describe its most popular product – cellulose acetate.

This is primarily used in cigarette filters and fillers, although it can also be used to create a biodegradable and compostable wood pulp material.

From there, it expanded to create great success in various chemical manufacturing lanes. It’s the world’s leading acetic acid and vinyl acetate monomer (VAM) producer, and it can turn natural gas into ethanol.

Pharmaceutical company Celgene, which merged with Bristol-Myers Squibb Co (NYSE:BMY) spun off from Celanese. It still holds a food business called Nutrinova, which creates sweeteners and other food ingredients, like sorbic acid and potassium sorbate.

It’s involved in everything from plastic polymers to the chemicals used to create them. Their products are placed in glues, paper, mortar, textiles, paints, coatings, and even fuels.

And it has a global footprint that makes some bullish investors wonder if the company’s stock is a good investment.

Is Celanese Stock A Buy?

Celanese analysts are split on bullish sentiment. Approximately half its analysts rate the company a Buy and the balance a Hold. Its upside potential based on a standard cash flow analysis suggests a CE price per share of $133.11.

Its net sales for the third quarter of 2020 were $1.4 billion, which generated $184 million in profit. This shows its strong market penetration deep in the supply chain in spite of broad economic difficulties.

The company entered the holiday season with over $350 million in free cash flow, and it spent $184 million in share buybacks and shareholder dividends. Its cash flow grew from the beginning of the year, and quite a bit from the $283 million it reported the prior quarter.

It pays an annual dividend of 1.82 percent, which is dividend between four $0.62 quarterly payments. It has a consistent history of raising that cash dividend payment every year for nine years.

Dividend investors love the company’s consistency and sustainable revenue growth. However, bearish investors warn that the company’s price may not be sustainable.

Economic Slowdown Hurt Celanese

Because Celanese sells a variety of products for different applications, it has exposure in a lot of markets. This means when airlines and cruises were hit, it had a knock-on effect that hurt Celanese order demand.

This holds true through all its markets – when the economy slows, it inevitably feels the blow in its revenues. It did see a dip across the board in the June quarter following the pandemic. This reflects the global shutdowns that halted production in many industries, including food.

In fact, the company’s net sales slid below $1.2 billion that quarter, compared to nearly $1.6 billion the prior quarter and over $1.4 billion the next. It was especially hard hit in engineered materials for that quarter, and acetate too has barely recovered since.

These weaknesses show that the company isn’t impervious to market conditions. Changing consumer habits can greatly affect it, especially going paperless let alone healthier dietary trends. Consumers are increasingly avoiding the types of artificially sweetened foods the company’s products are used in.

As market conditions continue to change, Celanese needs to continue innovating to stay ahead of the competition.

High Barrier To Entry Limits Competition

Celanese is an industrial chemical company that has a high barrier to entry. Still, it does have competition from billion-dollar companies around the world. Saudi International Petrochemical, Westlake Chemical, Lyondell, and INEOS Group all have assets in the same market.

Engineered materials are finding their way into every aspect of our lives. From construction to clothing and food, there are companies like this competing to turn raw resources into materials used for finished goods.

If the economy slows down, each has risks of competing in a shrinking market and may move into other chemical processes. This includes the oil industry too, where companies are trying to keep processes proprietary in order to maintain their value while struggling.

Is Celanese Stock A Buy? The Bottom Line

Celanese is a large chemical materials company that’s involved in every aspect of our lives. It creates materials used in foods, oils, polymers, and more. While business segments felt the effects of a more sluggish economic environment, CE share price quickly recovered to surpassed former 52-week highs.

It’s a reliable dividend stock for income investors, and it has steadily increased its quarterly payments while aggressively buying back shares.

Celanese has a wide footprint and large customer base. It’s the biggest player in several of its product offerings, and that makes it an integral part of the economy. Whether it continues to provide these returns to investors through a turbulent decade in the 2020s remains to be seen.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.