5. Eastman Chemical Company (NYSE:EMN)
Forward P/E: 11.95
Earnings Growth: 20.20%
Number of Hedge Fund Holders: 28
Eastman Chemical Company (NYSE:EMN) is an American company that produces a variety of advanced materials, chemicals, and fibers used in everyday products. The company serves multiple end markets, including transportation, building and construction, and consumables. In 2021, Eastman Chemical Company (NYSE:EMN) began constructing one of the world’s largest plastic-to-plastic advanced recycling facilities in Kingsport, demonstrating its commitment to sustainability.
In the second quarter of 2024, the company reported impressive financial results with sales revenue of $2.36 billion, reflecting a 2% increase driven by a 6% rise in sales volume, despite a 4% decline in selling prices. The company’s operating cash flow in Q2 2024 was robust at $367 million, allowing it to return $195 million to shareholders through share repurchases and dividends. Furthermore, Eastman Chemical Company (NYSE:EMN) achieved a significant milestone by ramping up operations at its Kingsport methanolysis facility, which now processes hard-to-recycle feedstocks.
Eastman’s (NYSE:EMN) focus on specialty product offerings and effective price-cost management has led to a 300-basis-point margin improvement compared to the previous quarter. This strategic approach positions the company well for future growth as it also continues to enhance its circular economy initiatives.
EMN ranks among the top 5 on our list of the 10 undervalued chemical stocks to invest in. According to Insider Monkey’s database of over 900 hedge funds, 28 hedge funds held stakes in Eastman Chemical Company (NYSE:EMN) in Q2 2024.
ClearBridge Investments stated the following regarding Eastman Chemical Company (NYSE:EMN) in its “ClearBridge Sustainability Leaders Strategy” second quarter 2024 investor letter:
“Helping companies meet these new rules will be ClearBridge holding Eastman Chemical Company (NYSE:EMN), which makes a range of advanced materials, chemicals and fibers for everyday purposes, among them plastics for food packaging. In a recent engagement with Eastman Chemical we discussed two different chemical recycling technologies it has developed: polyester renewal technology (‘PRT’) and carbon renewal technology (‘CRT’). PRT recycles polyester-based materials such as soda bottles, carpet fibers and even clothing, breaking down their basic molecules until they are indistinguishable from materials made from virgin or nonrecycled content. CRT operates in a similar way but can take a broader range of plastic types and replaces the use of coal as a feedstock to make fibers. Combining these two technologies gives Eastman a competitive advantage in molecular recycling, as it can take most types of waste plastics (Exhibit 1). Ironically, securing feedstock (i.e., waste plastic) has been a bottleneck to scaling molecular recycling as competitor technologies not using Eastman’s dual technologies often require the waste plastic to be separated purely according to grade, which waste and recycling companies do not readily offer. Eastman’s dual technology approach allows it to accept most plastic grades, making it less reliant on waste companies’ sorting.
Eastman’s first recycling plant is now operational in Tennessee, which will supply its internal Advanced Materials lines while also proving out the technology. The company is already working toward a second plant in Texas that will have Pepsi (PEP) as its anchor customer. In the second plant, not only will Eastman help Pepsi meet its recycled content goals, but it is also expected to receive long-term, take-or-pay volume commitments, for doing so. This should greatly improve earnings visibility, and in turn, potentially valuation…” (Click here to read the full text)
