Eastman Chemical Company EMN outlined its solid financial position, reflecting the strength of its cash flow, balance sheet and liquidity sources. This offers a strong foundation amid the coronavirus pandemic.
Per management, although the company continues to evaluate the impact of the coronavirus outbreak, it is focusing on generating cash by implementing decisive steps on which it can control working capital and cost management. Notably, Eastman Chemical remains dedicated to maintain a disciplined approach to capital allocation, with an emphasis on financing its dividend and debt reduction.
The company anticipates first-quarter 2020 earnings per share to rise from that in the prior-year period, higher than earlier estimates. Moreover, free cash flow is anticipated to roughly break-even in the first quarter, which is far above the typical first-quarter free cash flow in previous years.
Also, the company is taking incremental actions, including the reduction of capital expenditure from earlier estimates of $450-475 million to $325-375 million, to boost its free cash flow in 2020. Additionally, working capital is anticipated to be more than $250 million of cash flow beyond the prior expectation for 2020, assuming prices of raw materials to stay similar to current levels, and the coronavirus outbreak’s unfavorable impacts on demand. Also, it is actively managing all of its costs.
The company’s balance sheet remains strong, with no long-term debt slated to mature in 2020 and a manageable amount of debt outstanding in 2021. Eastman Chemical expects to reduce debt by more than $400 million in 2020 by retiring certain existing borrowings.
Significant and multiple sources of liquidity such as a $1.5-billion revolving credit facility are significant part of the company’s financial strength. In the current climate, Eastman Chemical intends to access $400 million of available borrowings under the revolving credit facility, and seeks additional sources of liquidity if required. Notably, the company anticipates having more than $600 million of cash and cash equivalents at the beginning of the second quarter, and remains focused on retaining a solid investment-grade credit rating.
Eastman Chemical’s shares have lost 37.9% over a year, outperforming the 52.1% decline of the industry it belongs to.
Zacks Rank & Stocks to Consider
The company currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the basic materials space are Franco-Nevada Corporation FNV, NovaGold Resources Inc. NG and Barrick Gold Corporation GOLD.
Franco-Nevada has a projected earnings growth rate of 24.2% for 2020. The company’s shares have rallied 46.1% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently flaunts a Zacks Rank #1. The company’s shares have surged 90.3% in a year.
Barrick Gold currently has a Zacks Rank #2 (Buy) and a projected earnings growth rate of 34.5% for 2020. The company’s shares have gained 34.1% in a year.
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