New York, NY (PressExposure) October 12, 2012 -- NEW YORK, October 8, 2012 - Gilford Securities, a full-service investment firm, headquartered in New York City, announced a change in recommendation on Eastman Chemical (EMN) downgrading their previous Buy rating to a Hold rating in a research report issued to clients.
The Gilford Securities analyst noted, "We are not negative, (valuation has only recovered from low to fair), only more cautious." Commenting on the reasons for the downgrade, the analyst cited three reasons for the change in rating:
"First, since January we have felt that the Solutia acquisition is expensive. In particular, we think 10x EBITDA is a full price for a business that has already been put through the cost-cutting wringer, making $100mm in cost synergies by year-end 2013 look ambitious, and that gets most of its earnings from one product (Crystex vulcanizing agent in radial tires). The investment community, meanwhile, is already quite positive."
"Second, we see the possibility of an earnings shortfall. For 2H12 and 2013, we get slightly below consensus numbers, and we might be high. In particular, Solutia." The analyst also noted "the shortfall appears to be mainly in Advanced Interlayers, (SAFLEX windshield interlayer, VISTASOLAR photovoltaic encapsulants). Solar and Europe remaining under pressure might mean 2H EBITDA below 1H."
As a third reason for the downgrade, "Our two long-term growth stories might be taking a little longer to ripen. The first was Tritan packaging copolyester, which we wrote up in 2010; second, Perennial acetylated wood, which we highlighted a year ago. Both these projects are on track but Tritan is taking longer than expected to sell up its capacity, and Perennial is in an early marketing stage at big box stores, so there may be another three years or so to wait. The same is true of the benefits to Eastman of a deal agreed earlier this year with Enterprise to buy propylene from it at propane-plus pricing once its propane dehydrogenation unit starts up around mid-2015."
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