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Celanese (CE) Up 11.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Celanese (CE). Shares have added about 11.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Celanese due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Celanese’s Earnings Beat Estimates in Q1, Revenues Miss

Celanese logged earnings from continuing operations of $1.88 per share in first-quarter 2020, down from $2.64 in the year-ago quarter.

Barring one-time items, adjusted earnings were $2.29 a share, down from $2.62 in the year-ago quarter. However, it surpassed the Zacks Consensus Estimate of $2.19.

Revenues of $1,460 million fell 13.5% year over year and missed the Zacks Consensus Estimate of $1,512.2 million. The company witnessed a demand weakness due to the impacts of the coronavirus outbreak during the reported quarter.

Segment Review

Net sales in the Engineered Materials unit were $563 million in the quarter, down 15% year over year. The segment witnessed lower volumes in Asia due to the impacts of the coronavirus outbreak in the quarter.

The Acetyl Chain segment posted net sales of $799 million, down 10.1% year over year. Sales were affected by a sustained decline in industry pricing due to weakness in Asia demand and underlying raw materials.

Net sales in the Acetate Tow segment were $129 million, down 22.3% year over year.

Financials

Celanese ended the quarter with cash and cash equivalents of $570 million, up 29.3% year over year. Long-term debt was up 14.4% year over year to $3,356 million.

Celanese generated operating cash flow of $259 million and free cash flow of $135 million in the quarter. Capital expenditure was $119 million for the quarter. Moreover, the company completed $150 million in share repurchases during the reported quarter.

Outlook

Celanese expects to generate $300-$400 million of incremental cash on account of the actions that it is presently taking on productivity, working capital management and capital expenditure prioritization that enables it to offset challenges related to demand and earnings in 2020.

The company suspended its earlier announced annual adjusted earnings per share guidance for 2020 due to uncertainties regarding the duration and impact of the coronavirus pandemic.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -33.07% due to these changes.

VGM Scores

At this time, Celanese has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Celanese has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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