Celanese Earnings: Shares Fall on Management’s Reduced Outlook

We maintain our $160 per share fair value estimate for Celanese CE after updating our model to incorporate the company’s first-quarter results. Our narrow moat rating is also unchanged.

Celanese shares were down 5% at the time of writing as the market reacted negatively to management’s guidance cut from adjusted EPS of $12.50 at the midpoint to $11.50, on a prolonged macroeconomic slowdown that will lead to lower volumes and profits, particularly in the first half of the year.

Based on its end market mix, Celanese is one of the most cyclical specialty chemicals producers in our coverage, with over 80% of sales to more cyclical end markets, such as automotive. As such, we had already modeled a slowdown and assumed lower 2023 profits.

At current prices, we view Celanese as materially undervalued with shares trading nearly 35% below our fair value estimate. Shares trade just slightly above our downside scenario, which produces a fair value estimate of $90 per share. Our downside scenario assumes low-single-digit revenue growth over our five-year forecast with EBITDA margins well below 2022 levels as acetyl chain sees cyclically low profit conditions for longer (e.g., lower Brent oil prices, which inform prices, and higher U.S. natural gas prices, which inform costs). As such, we view the current stock price as an excellent opportunity for long-term investors to pick up Celanese shares with a solid margin of safety.

In engineered materials, Celanese continues to integrate the recently acquired DuPont mobility and materials business. As Celanese continues to integrate the business into its EM segment, we expect to see sequential profit improvement and margin expansion even as a macroeconomic slowdown weighs on volumes. As volumes recover in the coming years, we expect the engineered materials segment will see EBITDA margins rise from the low-20% range to the mid- to high-20% range in midcycle conditions.