Eastman Chemical: Strong Stock in a Strong Industry
The heart of this story is that as developing nations build out, then they will devour more resources…chemicals being one of them. So the chemicals group has amongst the best earnings momentum trends right now leading to a Zacks Industry Rank of 30 out of 264. Since half of a stock's performance is related the popularity of the industry, then this high industry rank is a good start.
Eastman (EMN) blends another three very attractive investment qualities. Explosive earnings estimates, attractive valuation, and 2.5% dividend into the portfolio.
This is a great trifecta of positive investment characteristics. Digging into the specifics we see on the earnings estimates front they have averaged +19% earnings surprises that last four quarters leading to massive upward estimate revisions. The latest report came in at $2.05 versus $1.66 estimate. More recently they preannounce that they would come in way ahead of estimates for the 3rd quarter. Analysts realized that the good times weren’t just for this quarter, but will have residual benefit into 2011 and beyond.
Some analysts have raised estimates for next year by as much as 80 cents up to $7.60. That is up from $5.95, just 60 days ago. Not surprisingly, this excellent estimates activity has led to a Zacks #1 Strong Buy rating.
As for valuation, these shares have traditionally traded for at least 12X earnings. Apply that to 2011, and you could see how shares could easily get to $85 or $90. However, it if keeps banging out earnings surprises, and estimates roll higher, then this could prove quite conservative.
Rocketing estimates and attractive valuation is generally enough to make an investor interested in a stock. Now toss in a dividend yield of 2.5%...about the same that you’d get on a 10 year Treasury. Add it all up and you can see why this stock is so attractive. .
Disclosure: Of course I own EMN. Why recommend a stock if you aren't going to own the shares yourself?
