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First there was M&M’s
Then, there was Eminem
One of them makes you fat, the other one is kind of funny for a few minutes, then you get bored. I was thinking of something a little longer lasting that doesn’t melt in your mouth or your hand.
Today I bought stock in EMN (Eastman Chemical Co) at 65.90. I will sell it in 4 to 6 weeks at 76.16. Here’s why I like EMN:
Eastman Chemical Company, a chemical company, engages in the manufacture and sale of chemicals, plastics, and fibers in the United States and internationally. The company operates in four segments: Coatings, Adhesives, Specialty Polymers, and Inks (CASPI); Fibers; Performance Chemicals and Intermediates (PCI); and Specialty Plastics. The company was founded in 1920 and is headquartered in Kingsport, Tennessee.
Can you smell the chemistry? What I am banking on is an economic recovery in 2013 that is going to get enormous tailwinds from the housing and auto markets. We’ve already seen it begin. We’re also seeing easing in credit and more federal stimulus. Eventually when all of these powderkegs come together, we’re going to see some inflation that we haven’t seen in a long time. The only way to get out of this economic malaise is to inflate your way out of it. That’s what the government has been doing incessantly for a while. The problem is the lag effect. The dynamite is being stacked and stacked. It just hasn’t been ignited yet.
Companies like EMN that make base materials will benefit more from inflation than anyone else. They’ll be able to pass on price increases like nobody’s business. EMN has been delivering forecast-topping earnings and is well placed to benefit from its recent acquisitions. The company’s diversified chemical portfolio and integrated and diverse downstream businesses make for handsome revenue stream. It also benefits from business restructuring, cost-cutting measures and increased capacity additions.
Let’s look at the chart:
As Howard Cosell would say, look at that little monkey go!
The company has a P/E ratio of 16.3, below the S&P 500 P/E ratio of 17.7. Shares are up 59.1% year to date as of the close of trading on Wednesday. Currently there are 7 ANAL-ysts that rate Eastman Chemical Company a buy, no ANAL-ysts rate it a sell, and 5 rate it a hold.
EMN added another $1 billion of revenue, and all those businesses that were added taken together were higher margins than what the corporate margin was before. With this portfolio upgrade they are going to have more consistent earnings growth.
Their strategy is simple. Run the core businesses as well as they can to maximize the cash that comes into the corporations. Then differentiate themselves by making smart choices with how they spend their cash. They are going to pursue the organic growth opportunities, acquisitions, or give back the cash to shareholders.
They are targeting $8 a share in 2015, which would mean 6 years of double-digit earnings growth for the company. If you remember their history, they were Eastman Kodak which was North American-centric. Now you've seen them move more revenue outside of North America. So their 2 largest regions now are North America and Asia. For a long time, Eastman Kodak had been an extremely successful business. However, after a digital camera was invented, Kodak went bye bye. No worries here. Kodak is worth only $58.3 million while Eastman Chemical is worth more than $8.3 billion in the market.
EMN expects free cash flow generation and operating cash flow to continue to be strong. For 2013, expect free cash flow to be roughly $575 million. That free cash flow will continue to grow between the period of 2012 and 2015, will generate more than $2 billion in free cash flow. That’s a lot of salad.
Eastman pays a quarterly dividend of 26 cents a share, which works out to an annualized yield of 1.7%. Looking at the financials alone is misleading, as the revenue and earnings growth has largely been propelled by acquisitions. Having said that, if we can trust management to make good decisions, a lot of the operating costs will be squeezed out and margins will improve. If you combine this with the macroeconomic tailwinds, this stock is really going places.
What I see is a really healthy balance sheet. Their enormous cash flow has their cheap debt more than covered. Their Return on Equity is 22%. The company’s portfolio of businesses locked down $696 million of earnings in 2011 of $7.2 billion in sales. If you look at the last 4 quarters reported, you see the sales have bumped up to $7.7 billion. Wait til inflation gets a hold of this!
At the end of the day, if you believe their projection of $8.00/share of earnings. That means that they will more than double their earnings growth in less than three years from their ttm earnings of $3.82/share. That means that each year, they look to add $1.39/share of earnings. So if you want to look at just the year 2013, if you add $1.39 to $3.82, you get earnings of $5.21/share. If you take the $5.21/share and multiply it by today’s PE of 16.3, you get a share price of $84.92, which is well past my sell target.
That’s right…another $$$MR. MARKET$$$ winner.
Their CEO is Mr. Rogers. He wants to be your friend. This is what he had to say:
"We have taken strategic actions over several years that have significantly improved our portfolio of global specialty chemicals. Our results demonstrate the strength and diversity of our businesses as we continue to develop innovative products in attractive markets," said Rogers. "We have sound financial objectives and our team remains confident in the additional value our recently completed Solutia acquisition will create for Eastman stockholders. Successfully executing our strategy has enabled us to effectively leverage Eastman`s world-class technology platforms and we expect to continue this momentum as we move into 2013 and beyond."
"This third cash dividend increase in two years demonstrates the Board's confidence in our ability to generate continued strong cash flows and earnings growth," said Jim Rogers, chairman and CEO. "We remain committed to maintaining a strong financial position as we execute our strategy to deliver consistent, superior value."
Here’s another quote from Mr. Rogers:
“Often when you think you're at the end of something, you're at the beginning of something else. I've felt that many times. My hope for all of us is that 'the miles we go before we sleep' will be filled with all the feelings that come from deep caring – delight, sadness, joy, wisdom – and that in all the endings of your life, we will able to see the new beginnings."
Actually that last quote was from the real Mr. Rogers, the one who had the PBS TV show. All I can say is, amen to that.
Happy Holidays to you all!
$$$MR. MARKET$$$
Then, there was Eminem
One of them makes you fat, the other one is kind of funny for a few minutes, then you get bored. I was thinking of something a little longer lasting that doesn’t melt in your mouth or your hand.
Today I bought stock in EMN (Eastman Chemical Co) at 65.90. I will sell it in 4 to 6 weeks at 76.16. Here’s why I like EMN:
Eastman Chemical Company, a chemical company, engages in the manufacture and sale of chemicals, plastics, and fibers in the United States and internationally. The company operates in four segments: Coatings, Adhesives, Specialty Polymers, and Inks (CASPI); Fibers; Performance Chemicals and Intermediates (PCI); and Specialty Plastics. The company was founded in 1920 and is headquartered in Kingsport, Tennessee.
Can you smell the chemistry? What I am banking on is an economic recovery in 2013 that is going to get enormous tailwinds from the housing and auto markets. We’ve already seen it begin. We’re also seeing easing in credit and more federal stimulus. Eventually when all of these powderkegs come together, we’re going to see some inflation that we haven’t seen in a long time. The only way to get out of this economic malaise is to inflate your way out of it. That’s what the government has been doing incessantly for a while. The problem is the lag effect. The dynamite is being stacked and stacked. It just hasn’t been ignited yet.
Companies like EMN that make base materials will benefit more from inflation than anyone else. They’ll be able to pass on price increases like nobody’s business. EMN has been delivering forecast-topping earnings and is well placed to benefit from its recent acquisitions. The company’s diversified chemical portfolio and integrated and diverse downstream businesses make for handsome revenue stream. It also benefits from business restructuring, cost-cutting measures and increased capacity additions.
Let’s look at the chart:
As Howard Cosell would say, look at that little monkey go!
The company has a P/E ratio of 16.3, below the S&P 500 P/E ratio of 17.7. Shares are up 59.1% year to date as of the close of trading on Wednesday. Currently there are 7 ANAL-ysts that rate Eastman Chemical Company a buy, no ANAL-ysts rate it a sell, and 5 rate it a hold.
EMN added another $1 billion of revenue, and all those businesses that were added taken together were higher margins than what the corporate margin was before. With this portfolio upgrade they are going to have more consistent earnings growth.
Their strategy is simple. Run the core businesses as well as they can to maximize the cash that comes into the corporations. Then differentiate themselves by making smart choices with how they spend their cash. They are going to pursue the organic growth opportunities, acquisitions, or give back the cash to shareholders.
They are targeting $8 a share in 2015, which would mean 6 years of double-digit earnings growth for the company. If you remember their history, they were Eastman Kodak which was North American-centric. Now you've seen them move more revenue outside of North America. So their 2 largest regions now are North America and Asia. For a long time, Eastman Kodak had been an extremely successful business. However, after a digital camera was invented, Kodak went bye bye. No worries here. Kodak is worth only $58.3 million while Eastman Chemical is worth more than $8.3 billion in the market.
EMN expects free cash flow generation and operating cash flow to continue to be strong. For 2013, expect free cash flow to be roughly $575 million. That free cash flow will continue to grow between the period of 2012 and 2015, will generate more than $2 billion in free cash flow. That’s a lot of salad.
Eastman pays a quarterly dividend of 26 cents a share, which works out to an annualized yield of 1.7%. Looking at the financials alone is misleading, as the revenue and earnings growth has largely been propelled by acquisitions. Having said that, if we can trust management to make good decisions, a lot of the operating costs will be squeezed out and margins will improve. If you combine this with the macroeconomic tailwinds, this stock is really going places.
What I see is a really healthy balance sheet. Their enormous cash flow has their cheap debt more than covered. Their Return on Equity is 22%. The company’s portfolio of businesses locked down $696 million of earnings in 2011 of $7.2 billion in sales. If you look at the last 4 quarters reported, you see the sales have bumped up to $7.7 billion. Wait til inflation gets a hold of this!
At the end of the day, if you believe their projection of $8.00/share of earnings. That means that they will more than double their earnings growth in less than three years from their ttm earnings of $3.82/share. That means that each year, they look to add $1.39/share of earnings. So if you want to look at just the year 2013, if you add $1.39 to $3.82, you get earnings of $5.21/share. If you take the $5.21/share and multiply it by today’s PE of 16.3, you get a share price of $84.92, which is well past my sell target.
That’s right…another $$$MR. MARKET$$$ winner.
Their CEO is Mr. Rogers. He wants to be your friend. This is what he had to say:
"We have taken strategic actions over several years that have significantly improved our portfolio of global specialty chemicals. Our results demonstrate the strength and diversity of our businesses as we continue to develop innovative products in attractive markets," said Rogers. "We have sound financial objectives and our team remains confident in the additional value our recently completed Solutia acquisition will create for Eastman stockholders. Successfully executing our strategy has enabled us to effectively leverage Eastman`s world-class technology platforms and we expect to continue this momentum as we move into 2013 and beyond."
"This third cash dividend increase in two years demonstrates the Board's confidence in our ability to generate continued strong cash flows and earnings growth," said Jim Rogers, chairman and CEO. "We remain committed to maintaining a strong financial position as we execute our strategy to deliver consistent, superior value."
Here’s another quote from Mr. Rogers:
“Often when you think you're at the end of something, you're at the beginning of something else. I've felt that many times. My hope for all of us is that 'the miles we go before we sleep' will be filled with all the feelings that come from deep caring – delight, sadness, joy, wisdom – and that in all the endings of your life, we will able to see the new beginnings."
Actually that last quote was from the real Mr. Rogers, the one who had the PBS TV show. All I can say is, amen to that.
Happy Holidays to you all!
$$$MR. MARKET$$$
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