Celanese Corporation is a global specialty chemical company that produces high performance-engineered polymers materials used for thousands of applications. It operates 25 production plants and six research centers where the company is constantly looking for new ways to find new uses for its product.
CE is a cyclical company and is economically-sensitive. This will be a down year for CE, but it has done very well and is already seeing things improving (especially in China). For 2020, earnings should be around $9.00 a share.
CE operates in three segments. Engineered Materials makes up about 40% of total sales, and develops polymers for a broad array of businesses, including automotive, medical, industrial, and many consumer products that we use every day. One big seller is acesulfame potassium, a sweetener used widely in the beverage/drink and confection business.
Acetate Tow comprises 9% of total sales, and is made from purified wood pulp—an environmentally friendly product. Margins are good here and when the economy is humming, it is especially good. This product is used in thousands of different types of “filters”. The filter business is going to benefit from the problems we face with COVID-19 and other clean indoor air issues that will be front and center for the next five years, at least.
Acetyl Chain is the biggest division at Celanese and a bit more than 50% of sales. Acetyl is sold, largely in the form of acetic acid, vinyl acetates, hot melt adhesives, and acetic esters, that are used for paints, adhesives, colorants, pharma-products, construction materials, glass fibers, many textiles, carpets, flooring products, flexible package products, and paper applications.
The company is the biggest CH3CO producer in the world–# 1 in vinyl acetate monomer (VAM)—which is a widely used product with thousands of applications. VAM is a colorless, liquid organic compound that is the precursor to polyvinyl acetate. CE does have competitors but from looking at this “niche”, I believe the company is truly superior.
Blackstone bought Celanese in 2003 in a takeover, gave it a “new-coat-of-paint” and then sold it in a public offering 27 months later for a “5-bagger”. Since 2007, when Blacksonte sold its last large block, Celanese has been independently run.
Big institutional owners include Vanguard, with 12% of the shares; Dodge, 9%; Wellington, 8%; Capital, 7%; and Blackstone, around 7%.
Margins are pretty steady, Celanese has clean accounting, steady management and all the right stuff for a quality cyclical. Just remember this is NOT a buy/keep stock and is best for an IRA, etc.
The price/earnings ratio is around 11-12 times 2021 projections. Zacks’ estimates are for $6.87 this year—obviously not a great year—but still very profitable. Year 2021 consensus is for $9.00. The shares are cheap, as long as earnings are headed north. Now, obviously this is a cyclical company, but Celanese is innovative, finds new markets, and grows earnings. I believe it’s going to be better earnings ahead the next 3-5 years.
In the last 4-5 years, the company has bought back about 15% of its stock and currently has plans to buyback another $1.5 billion over the next few years—about 11-12%. Celanese recently sold a business for $1.6 billion, which is possibly to be used for paying down debt and buying back more stock.
In the last 15 years, EPS growth averaged over 16%—really impressive. I would also note that this is a SPX-beating number and Celanese has beaten the SPX in the last seven years with a stock performance that is 1.5 times better than the SPX.
The stock was $15 in 2005 and now 15 years later, it is a very impressive “7-Bagger”—not bad. Technically speaking, Celanese has a nice, long ‘stair-step’ gain of a chart since going public (again) on the Blackstone cashing-in-its -chips deal. It IPO’d at $15, then got clobbered in 2009 (this IS an economically-sensitive stock), briefly falling to as low as $5, and ever since then has made nice, steady gains. CE has been able to “smooth-out” the ‘downs’ so the earnings swings aren’t so big.
CE crashed briefly to $50 in the March smash, only to double and more since then. $129 is the next-hurdle to be jumped. This can be a volatile stock, and I think now is the time to buy it. There should be lots of support in the $100-110 area.
I am moving my buy suggestion up to $120 (but don’t chase it past that) and note that most of the stocks that have doubled off their March bottoms, like Celanese, are showing good earnings and are COVID-19/survivors. Celanese is prospering and is in good shape, so I do think there is a chance the stock can double ahead—maybe more.
Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486, October 2, 2020
Celanese Corporation (CE):
52-Week Low/High: $52.70 – 128.88
Shares Outstanding: 118.29 million
Institutionally Owned: 99.05%
Market Capitalization: $13.88 billion
Dividend Yield: 2.1%
- Global market leader
- Rising global demand, especially in China