I am assigning Eastman Chemical Company (NYSE:EMN) a positive risk/reward rating based on the likelihood of it surpassing consensus earnings estimates through mid-decade, its deeply discounted valuation, and its well-above-average income growth potential. Finally, the high quality of Eastman’s business may be undervalued by the market, opening the door to additional multiple expansion opportunity.
Risk/Reward Rating: Positive
Eastman Chemical performed extraordinarily well following the bursting of the 2000 valuation and technology bubble. From the bottom in April 2003 near $15 to the cycle peak near $90 in June 2014, the annualized rate of return was roughly 18% before dividends. Of note, the dividend yield is an above-average 3.4% today alongside an active share buyback plan. In comparison, the S&P 500 (NYSE:SPY) returned 7% per year over the eleven-year Eastman upcycle. The following 20-year monthly chart captures this period and the subsequent stagnation of Eastman’s shares from 2014 through today.
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