Eastman Chemical: Strong Value At 8x Earnings, 5% Yield

Published Tue, 10 Mar 2020 09:02:28 -0400 on Seeking Alpha

I held off on buying Eastman Chemical stock last year, despite it looking cheap.
After falling another 35%, it's finally into the buy zone.
While chemicals are a tough business, and Eastman doesn't deserve rich valuation, pessimism is getting to an extreme down here.
The company's strong capital return program will reward shareholders in the interim.
I last covered former Eastman Kodak spin-off Eastman Chemical (EMN) a year ago, saying that it was cheap but I wasn't buying more just yet. I haven't missed much. Since then, shares were lingering around the flatline through January, but have tumbled in recent weeks and are now down more than 30% year-to-date.
In any case, it has under-performed the market dramatically since my February 2019 article:
Data by YChartsIf I thought it was cheap (and already owned a little) last year, unless the business has materially deteriorated (it hasn't), the stock is now quite a bargain. Still, some more context is in order before rushing in to buy shares.
Cheap: Like Usual
Eastman stock has now been trading at or around a 10x P/E ratio for quite awhile, despite a raging bull market. It's far from the only chemical company trading at a depressed price lately as well. What's going on?
Data by YChartsAs you can see, Eastman stock almost never trades at even the normal 15x market multiple, let alone a premium. Furthermore, it hasn't really changed throughout the bull market. Aside from 2013, Eastman stock has steadily stayed in the 8-12x P/E ratio range. No sign of rising valuations here. Why aren't folks bidding it up?
For one thing, chemicals companies don't tend to trade at especially high valuations. They are often commodity businesses, tend to have a fair bit of capital intensity, and have both major cyclical risk and outside issues from time to time such as product liability concerns.
Even well-run chemical companies often have periods of mediocre returns. Eastman Chemical itself traded... Read more

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