Celanese Earnings: Near-Term Volume Decline Weighs on Profits

After updating our model to incorporate Celanese’s CE second-quarter results, we maintain our $160 fair value estimate and narrow moat rating.

Celanese’s stock was slightly up Aug. 8, despite management’s full-year guidance cut due to lower volume, as management laid out its plan to grow profits in 2024 even if macroeconomic conditions do not materially improve and demand remains below historical normalized levels. At current prices, we view the shares as undervalued, trading in 4-star territory and at more than a 20% discount to our fair value estimate.

We had expected Celanese’s profits would fall in 2023 amid a global economic slowdown. However, we have reduced our 2023 outlook further to account for lower volume and reduced capacity utilization, which will weigh on profits as the company is reducing production to get rid of excess inventory. Previously, we had expected that a slowdown would extend into 2024, weighing on both years’ profits. Now we have updated our forecast for a lower 2023 followed by a better 2024; we think the lower customer demand environment will remain in place during the second half of the year, but conditions will begin to improve in 2024.

In the engineered materials segment, Celanese continues to integrate the DuPont mobility and materials business acquired in 2022. Despite lower volumes for the segment in general, the DuPont business generated a 14% sequential profit improvement, as cost reduction synergies began to boost profits. The results are in line with our long-term view that Celanese will be able to drive profit growth and margin improvement by fully integrating the DuPont business into the existing EM portfolio. Management noted a bright spot from electric vehicles, where Celanese can sell more content per vehicle. As the cyclical businesses recover, we expect long-term growth will be driven by growing EV sales, which we forecast will account for 40% of new autos sold by 2030, up from roughly 10% in 2022.