tiprankstipranks
Eastman Chemical: Solid Dividend Growth Prospects
Stock Analysis & Ideas

Eastman Chemical: Solid Dividend Growth Prospects

Eastman Chemical (EMN) is a specialty materials company operating worldwide. The company produces a wide range of products found in items people use on the daily while also serving multiple industries, including transportation, consumables, building and construction, animal nutrition, and crop protection, among other markets.

Eastman Chemical has preserved a strong balance sheet and has been managed prudently over the years. Despite operating in a volatile industry, the company has historically produced relatively steady cash flows while sustainably growing its dividend.

Last year was the strongest one the company has seen since its inception. With robust dividend growth prospects ahead and shares trading at a reasonable valuation, I am bullish on Eastman Chemical.

Latest Results

Eastman Chemical’s latest results illustrated the ongoing tailwinds in the basic materials market, including record demand for basic materials.

During Q4, the company achieved revenues and adjusted earnings per share of $2.69 billion and $1.81, implying growth of 23.2% and 7.1%, respectively. As a result, both revenues and adjusted EPS reached new annual records.

Specifically, for the full year, Eastman Chemical posted revenue growth of 24% to $10.5 billion, propelled by growth across all operating segments. To break this down, revenue growth was driven by a 15% increase in selling prices and an 8% growth in sales volume/mix.

Eastman was able to realize higher selling prices due to the higher prices seen in raw material, energy, and distribution prices in general, as well as healthy end-market demand as the global economy rebounded from the COVID-19 pandemic.

Amid record revenues, adjusted EPS for Fiscal 2021 reached $8.85, an increase of 43.9% compared to Fiscal 2020. In addition, management shared its initial outlook for Fiscal 2022, expecting adjusted EPS to land between $9.50 and $10.00.

Management also reiterated its capital allocation priorities, including paying the quarterly dividend, investing towards organic growth, execting bolt-on acquisitions, and repurchasing shares. Operating cash flow is expected to exceed $1.6 billion this year.

Dividend Growth & Valuation 

Despite operating in a volatile industry, Eastman’s prudent capital management has allowed the company to pay a growing dividend. Specifically, the company counts 13 years of consecutive annual dividend increases. It has also never cut the dividend since the first one it paid back in 1994.

The company’s latest dividend increase back in December was by a pleasing 10.1% to a quarterly rate of $0.76 per share. Despite the double-digit dividend hike, the dividend payout ratio currently stands at just over 30% based on the midpoint of management’s adjusted EPS guidance.

Consequently, I believe Eastman’s dividend growth prospects remain quite strong, with the company able to meaningfully increase its payouts moving forward with relative comfort.

The midpoint of management’s adjusted EPS outlook also implies that the stock is currently trading at a forward P/E of 11.3. While a multiple in the single-digits could be more appropriate for a company reporting volatile revenues, the stock is actually trading near its historical average from a forward P/E perspective. I believe the current multiple is quite fair overall, considering the company’s qualities.

Wall Street’s Take

Turning to Wall Street, Eastman Chemical has a Moderate Buy consensus rating, based on nine Buys and five Holds assigned in the past three months.

At $139.79, the average Eastman Chemical price target implies 27.1% upside potential.

Conclusion 

The basic materials sector can produce very volatile investment results depending on the underlying macro environment. Eastman provides exposure in the space, though its diversified operations and portfolio have historically resulted in solid financials.

The company’s recent performance was rather impressive, while its dividend growth prospects remain strong, as demonstrated by the more recent double-digit dividend increase. With the stock trading at a reasonable valuation as well, I am bullish on Eastman Chemical.

Download the TipRanks mobile app now

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Read full Disclaimer & Disclosure

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles