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We maintain our Outperform recommendation on Celanese Corporation (CE) after it reported excellent third-quarter 2011 results. Adjusted earnings were $1.27 per share, beating the Zacks Consensus Estimate of $1.11.

Quarterly revenue also grew 20% year over year to $1.81 billion, primarily driven by higher pricing across all operating segments and favorable currency impacts. The results surpassed the Zacks Consensus Estimate of $1.69 billion.

Celanese is one of the world’s largest producers of acetyl products, as well as a leading global producer of high-performance engineered polymers. The company is also the world leader in VAM and acetic acid production, with market shares of 30% and 28%, respectively.

The company’s downstream units consume about two-thirds of the production. Celanese’s global market share in the acetate tow business is 30%. In the Engineered Products business, Celanese grew 6% per year with the bulk of sales coming from the auto industry.

Celanese announced the expansion of ethylene vinyl acetate ("EVA") capacity at its Edmonton manufacturing facility, resulting from strong growth in strategic and high-value segments. Global EVA production increases are fueled by growth in the photovoltaic cell industry in China, strong demand for EVA in other parts of Asia, and demand for EVA in innovative applications like controlled-release products and medical packaging. Celanese expects its capacity to increase by up to 15% for higher vinyl acetate content EVA grades in the second half of 2011.

However, Celanese is exposed to volatile raw material (natural gas, ethylene and methanol) prices used in the production of basic chemicals in the Acetyl Intermediates segment, principally formaldehyde, acetic acid and vinyl acetate monomer.

Celanese raised its full-year 2011 outlook, encouraged by the strength of its third-quarter 2011 performance, its confidence in its earnings growth programs, and its expectations for a continued modest global economic recovery. The company now expects 2011 operating EBITDA to be at least $280 million, higher than 2010’s results of $1,122 million.

In addition, adjusted earnings per share are anticipated to be at least $1.30, higher than 2010’s results of $3.37, based on tax rate and diluted share count of 17% and 159 million shares, respectively.

The company also faces stiff competition from its larger peers E.I. DuPont de Nemours and Co. (DD) and The Dow Chemical Co. (DOW) in the Advanced Engineered Material Segment, as well as in the Industrial Specialties segment. Celanese’s balance sheet leverage is also relatively high, limiting its financial flexibility.

Currently, Celanese has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term (6 months and higher) Outperform recommendation.

 
CELANESE CP-A (CE): Free Stock Analysis Report
 
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DOW CHEMICAL (DOW): Free Stock Analysis Report
 
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