30 m chart | Missing long signal | Long area
Celanese Earnings: Lower Near-Term Outlook in Cyclical End Markets Weighs on Profits
Narrow-moat Celanese's third-quarter results reflected slowing demand and falling commodity chemicals prices. While companywide average chemical prices were down 3% versus the prior-year quarter, this was offset by cost savings initiatives as operating EBITDA was up 3% year over year. We've updated our outlook for a more delayed recovery, as we expect weaker demand will remain in place for the majority of Celanese's end markets, including the automotive and construction industries. As a result, we're reducing our 2024 and 2025 forecasts as we expect a slower volume recovery and lower prices. Accordingly, we're reducing our fair value estimate to $150 from $160.
Celanese shares were down 25% at the time of writing, as management's fourth-quarter guidance for adjusted earnings per share of $1.25 came in well below the median consensus estimates of $2.95 based on FactSet data. Additionally, management announced a plan to cut the dividend 95% in 2025 from the $2.80 per share paid in 2024 as a way to direct more free cash flow toward debt repayment. At current prices, we view Celanese shares as undervalued with the stock trading in 4-star territory.
While we were surprised management announced such a drastic dividend cut, this should allow Celanese to more quickly pay down debt and strengthen the balance sheet. We view this move as proactive and prudent. Following the announcement, we reviewed our Capital Allocation Rating, and we're maintaining our Exemplary rating, despite the dividend cut. While the current management team did make the DuPont acquisition that was funded with debt, we think the cyclicality in Celanese's business is driving the challenging near-term results, creating the need to cut the dividend. While management could have likely maintained the dividend over the near term, this should direct free cash flow to strengthen the balance sheet and allow Celanese to pay down debt even if the slowdown continues throughout 2025 and into 2026.
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