Will Eastman Chemical’s Stock Continue to Trend Higher?

With shares of Eastman Chemical Co. (NYSE:EMN) trading at around $73.75, is EMN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Eastman Chemical is trading up 3.66 percent so far today. Part of this is due to the strength of the market, but the majority of the move comes from good news related to earnings.

Q4 EPS came in at $1.19, which was in-line with estimates. Q4 revenue came in at $2.17 billion, which missed the average estimate of $2.25 billion. Nevertheless, this was still a 25 percent increase year-over-year. Q4 results included sales revenue from Solutia. FY2012 EPS was $5.38. In 2012, Eastman Chemical generated $1.1 billion in cash from operating activities as well as $471 million in cash flow. As far as all-important guidance goes, FY2013 EPS is expected to come in between $6.30 and $6.40. This is strong.

Eastman Chemical is fairly valued with a Trailing P/E of 18.62. The Forward P/E is 11.26. Margins are average at best, but earnings are strong on a consistent basis, and there is good cash generation. A combination of the Solutia acquisition, cost-cutting measures, restructuring, increased capacity, and strong guidance make for a strong likelihood of future success, but let’s take a look at the big picture prior to forming an opinion.