On Thursday, UBS upgraded shares of Eastman Chemical (NYSE:EMN), moving the rating from Neutral to Buy and increasing the price target to $128.00, up from the previous $106.00. The upgrade comes as the firm recognizes potential growth and earnings opportunities for the company.
The analyst at UBS noted that Eastman Chemical's first-quarter earnings have demonstrated that the company's expectations for 2024 might be conservative, as they beat earnings per share (EPS) estimates by 13%. Furthermore, the analyst anticipates higher growth into 2025 with additional upside potential from inventory restocking.
The firm also pointed out that while Eastman Chemical's volumes are currently approximately 10% lower than in 2021 and around 5% below 2019 levels, they expect volume leverage to significantly drive earnings growth over the next two years.
After about two years of stagnant EPS, UBS forecasts an inflection point, with second-half 2024 EPS expected to increase by more than 50% year-over-year.
UBS projects a compound annual growth rate (CAGR) of approximately 14% for Eastman Chemical's EPS over the next four years. The firm's EPS estimates for 2025 and 2026 are roughly 5-7% higher than the consensus.
The analyst expressed confidence that the stock would gradually ascend in alignment with earnings and possibly experience a re-rating as the company's investments in advanced plastics recycling begin to contribute to its growth.
InvestingPro Insights
With Eastman Chemical's (NYSE:EMN) recent upgrade by UBS, investors may find additional insights from real-time data and InvestingPro Tips valuable. The company's management has shown confidence in its growth by aggressively buying back shares, and it has a track record of rewarding shareholders, having raised its dividend for 14 consecutive years and maintaining dividend payments for 31 years. This aligns with UBS's view of Eastman Chemical's conservative growth expectations and the potential for significant earnings growth.
InvestingPro Data indicates that Eastman Chemical has a market capitalization of $11.69 billion and trades at a P/E ratio of 12.68, suggesting a valuation that might be attractive relative to its near-term earnings growth. The stock is trading near its 52-week high, with a price 96.94% of that peak, reflecting strong market confidence. Over the last three months, the company has seen a robust return of 15.8%, further underscoring the positive sentiment surrounding the stock.
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