Expanding Thermoplastics Portfolio Will Strengthen Position In Electric Vehicles And Medical Markets

Key Takeaways

• Strategic divestitures and cost actions aim to enhance cash generation and improve margins by focusing on core operations.
  
• Portfolio focus on thermoplastics and elastomers targets high-margin segments, driving growth in electric vehicles and medical applications.
  
• Heavy reliance on asset divestitures and deleveraging could strain Celanese's financial health amid competitive pressures and macroeconomic volatility.

Catalysts

A chemical and specialty materials company, manufactures and sells engineered polymers worldwide.

• Celanese has executed over $75 million worth of cost actions and reduced its 2025 capital plan by about $100 million compared to the previous year, which are expected to improve cash generation and enhance net margins.
  
• The company plans to leverage its engineered thermoplastics and thermoplastic elastomers portfolio to drive growth in high-margin segments like electric vehicles and medical applications, which should positively impact revenue and earnings.
  
• Celanese is considering divestitures of non-core assets to focus on its primary operating models and generate cash to deleverage the balance sheet, potentially enhancing net margins and earnings.
  
• A focus on smaller project wins in Engineered Materials, which tend to commercialize in 6 to 12 months, is expected to boost revenue in the near term.
  
• By enhancing the manufacturing footprint efficiency and reversing margin compression, Celanese aims to improve earnings through more competitive production methods and increased operational leverage.

Celanese Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Celanese's revenue will decrease by 0.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -14.7% today to 9.1% in 3 years time.
• Analysts expect earnings to reach $960.8 million (and earnings per share of $8.74) by about April 2028, up from $-1.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, up from -2.8x today. This future PE is lower than the current PE for the US Chemicals industry at 16.5x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Celanese Future Earnings Per Share Growth

Risks

• Celanese is relying heavily on asset divestitures to reduce leverage, which may indicate potential future revenue reductions if key assets are sold unexpectedly or if divestiture conditions worsen.
  
• The company faces challenges with margin degradation in its largest product lines, like nylon, due to competitive pressures, which could negatively impact net margins and earnings if not adequately addressed.
  
• Celanese is operating in a challenging macroeconomic environment where demand in critical segments, such as automotive, remains weak and volatile, impacting overall revenue generation and cash flow in the near to medium term.
  
• The need for aggressive deleveraging actions, including potential equity raises, highlights the financial risk and strain on the capital structure, which could affect earnings per share due to potential shareholder dilution.
  
• Structural overcapacity in the acetyl markets, primarily in Asia, poses risks to Celanese's pricing power and operating margins, potentially reducing expected cash flows and straining the company’s financial status.

Valuation

• The analysts have a consensus price target of $62.737 for Celanese based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $46.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $10.6 billion, earnings will come to $960.8 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 11.4%.
• Given the current share price of $37.49, the analyst price target of $62.74 is 40.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.