Eastman Chemical Co (EMN, Financial) experienced a daily gain of 4.19%, albeit a 3-month loss of 19.54%. The company's Earnings Per Share (EPS) stands at 5.86. But the question remains, is the stock significantly undervalued? In this article, we'll delve into the valuation analysis of Eastman Chemical Co. So, let's get started.
A Snapshot of Eastman Chemical Co
Established in 1920, Eastman Chemical Co was initially set up to produce chemicals for Eastman Kodak. Over time, it has grown into a global specialty chemicals company with manufacturing sites worldwide. The company generates the majority of its sales outside the United States, with a strong presence in Asian markets. In recent years, Eastman Chemical Co has sold noncore businesses, focusing on higher-margin specialty product offerings.
Despite the company's rich history and global presence, its current stock price stands at $73.04, significantly lower than the GF Value of $109.17. This discrepancy prompts a deeper exploration into the company's intrinsic value.
Understanding the GF Value
The GF Value is a unique measure that calculates the intrinsic value of a stock. It takes into account historical multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at.
Based on our proprietary method, the stock of Eastman Chemical Co is estimated to be significantly undervalued. The long-term return of its stock is likely to be much higher than its business growth due to its undervalued status.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength of Eastman Chemical Co
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Eastman Chemical Co has a cash-to-debt ratio of 0.08, ranking worse than 90.25% of 1507 companies in the Chemicals industry. Based on this, GuruFocus ranks Eastman Chemical Co's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Eastman Chemical Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $9.80 billion and Earnings Per Share (EPS) of $5.86. Its operating margin is 10.78%, which ranks better than 68.29% of 1523 companies in the Chemicals industry. Overall, the profitability of Eastman Chemical Co is ranked 8 out of 10, indicating strong profitability.
Growth is an essential factor in the valuation of a company. The 3-year average annual revenue growth rate of Eastman Chemical Co is 8.2%, which ranks worse than 54.62% of 1450 companies in the Chemicals industry. The 3-year average EBITDA growth rate is 1.6%, which ranks worse than 66.77% of 1342 companies in the Chemicals industry.
ROIC vs WACC
Another way to assess the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Eastman Chemical Co's return on invested capital is 7.76, and its cost of capital is 8.98.
Conclusion
In summary, the stock of Eastman Chemical Co is estimated to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 66.77% of 1342 companies in the Chemicals industry. To learn more about Eastman Chemical Co stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
