EMN: An Impressive Q1
Eastman Chem Co. (
EMN)
had an impressive first quarter 2008, marked by increasing prices,
volume gains and strength in several end markets. The company is likely
to benefit from its recent focus on the industrial gasification
business. Thus, we rate shares of EMN a Buy. Accordingly, we have set a
new price target of $80.00.
The company is seeing strong demand in several end markets including
PCI, Specialty Plastics, and Fibers. Eastman is hiking prices of major
products, a policy that is likely to offset higher operating costs and
help earnings. It is undergoing continuous restructuring and cost
cutting. Eastman's cash flow situation is improving. The balance sheet
is in good shape and the company enjoys good financial flexibility. The
management has plans for capital investment.
Currently, Eastman is valued at 11.5x our 2008 earnings estimate
of $5.86 per share. It has a strong fibers business and solid
financials, plus a potential PET restructuring. The stock is trading
about in line with the broader chemical industry. We expect EMN's
multiple to increase, given the company's volume growth, improving
margins and leverage to an improving economy.
In addition, the company's restructuring plans, including
divestitures or closures of underperforming assets, should ultimately
boost the bottom line. We believe these factors will contribute
meaningfully to the company's earnings over the near term.
BMY: Plavix Small Worry
Growth of mega-blockbuster Plavix is helping
Bristol-Myers Squibb Company (
BMY) drive EPS growth up near 13% in 2008. Patent expirations loom very large in Bristol's future starting in 2011 when the Plavix patent expires. That being said, the company does have an attractive mid-to-late-stage pipeline, and the company has been dramatically working to reduce costs and shed less profitable and non-core businesses.
We believe the company is an attractive take-over candidate at this level for a larger pharma name such as Sanofi-Aventis SA (SNY) or Pfizer Inc. (PFE). EPS growth at rates near the top of big pharma and a very attractive valuation prompted our recent upgrade from Hold to Buy. We expect the shares to trade up near $27 towards the end of 2008.
On July 24, Bristol-Myers reported financial results for the second quarter and reaffirmed previously issued financial guidance for the full-year 2008. Net revenue increased by 16% over the same period including a 5% benefit from foreign exchange.
