Between The Sheets With Celanese Corporation

I could waste a lot of your time providing you with graphs, charts, and other assorted worthless information all intended to show you that I know something about something when it comes to this company. The truth is, I don’t know squat about this company. My intent is to provide a reasonably brief overview of the company’s most recent annual financial performance so you can determine if you have an investment interest in this company.

That’s it. Simple and direct. Will an investment in this company help you achieve your investment goals? My question to ask, your question to answer.

Between the Sheets With Celanese Corporation

What They Do
Celanese Corporation (CE) produces acetyl products (intermediate chemicals) and engineered polymers, products that are used for paints and coatings, textiles, automotive applications, consumer and medical applications, performance industrial applications, filtration applications, paper and packaging, chemical additives, construction, consumer and industrial adhesives, and food and beverage applications.

Listed competitors are BASF SE (BASFY), LANXESS Aktiengesellschaft (LNXSF), and Methanex Corporation (MEOH).

Short-Term Target
My short-term target for the stock is $106.22, with an initial trailing stop set at $94.59. With a current price of $96.03, upward price movement will find resistance at $97.50 and again at $100.02, with final resistance found at $101.90. Downward price movement will find support at $94.49 and at $90.72 with final resistance found at $87.98.

Momentum Target
My momentum target for the stock is $119. Momentum targets are determined by overlaying a company’s most recent annual EPS, its year-over-year earnings growth, and the current yield of a 10-year treasury. Momentum investing requires investors to trade in stocks that have already enjoyed significant gains while making no allowances for overall market corrections or the sustainability of a company’s earnings.

Growth Target
My growth target for the stock is $134. Growth targets are determined using a company’s year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Fair Value Investing
Fair value investing, more commonly known as value investing, requires investors to consider a company’s overall financial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. For many fair value investors, the minimum required hold is five (5) years.

Average Volume
The average volume number is simply an average of the number of shares traded over a specific period of time, in this case the prior 50 days. The lower the number the greater the volatility the markets can impact on the stock price. For Celanese Corporation the most recent ADV number is 1.999 million shares.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measure of the company’s outstanding shares that are currently being sold short, expressed as the number of days required to close out the short position. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is updated twice per month and is sometimes used along with the beta ratio as a volatility precursor for a stock.

Beta Ratio
The beta ratio is a measure of the systemic risk of ownership of a particular stock as compared to the systemic risk of ownership of the market as a whole as measured against the S&P 500 Index Fund. Stocks with beta ratios above one (1) are more volatile than stocks with beta ratios below one (1). For Celanese Corporation the current beta ratio is 1.43.

Insider Transactions
The SEC classifies insiders as “management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their “insider” knowledge.

In the past 12 months, Celanese Corporation has reported 23 insider trades involving 26,246 shares of stock. Of those 23 insider trades, 12 were Buys involving 11,936 shares of stock, and 11 were Sells involving 14,310 shares of stock, creating an insider buy to sell ratio of 0.8 to 1.

In the fiscal year ended December 31, 2018, the company acquired certain assets and business operations of 100% of the ownership interests of Omni Plastics, L.L.C. and its subsidiaries (“Omni Plastics”) for $146million. Omni Plastics is located in Evansville, Indiana.

In June 2018, the company announced the consolidation of its global acetate manufacturing operations by initiating the closure of its acetate tow manufacturing unit in Ocotlán, Mexico. The acetate flake unit will remain operational and is unaffected by these actions.

Subsequent Events
In January 2019, the Company completed the acquisition of Next Polymers Ltd., an India-based engineering thermoplastics (“ETP”) compounder. Because the initial accounting for the acquisition was incomplete as of the issuance date of the company’s financial statements, the company has not presented a purchase price allocation related to the fair values of assets acquired and liabilities assumed. The acquisition is not expected to be material to the company’s 2019 financial position or results of operations.

Unrelated Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources can significantly distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts.

For Celanese Corporation 0% of the company’s net income came from income tax benefits and 31% of net income came from sources not directly related to the company’s business model.

Capital Ratios
Many investors use various capital ratios as a means to measure the effectiveness of management and the overall health of a business. The most common capital ratios seem to be Return on Assets, Return on Equity, Return on Capital Employed, Return on Invested Capital, Cash Flow From Invested Capital, and Debt to Capital Ratio.

For FY 2018, Return on Assets wax 10%, Return on Equity was 28%, Return on Capital Employed was 13%, Return on Invested Capital was 14%, Cash Flow From Invested Capital was 20%, and the Debt to Capital Ratio was 104%.

General Use Metrics
I am a practical investor. To get a quick sense of how the markets are currently valuing a stock, I like to use practical metrics instead of sleight of hand ratios. The ratios I like to look at are the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value and the Merger and Acquisition Return Period. For Celanese Corporation the PE Ratio is 13, the PEG Ratio is 1, Book Value is $26, Tangible Book Value is $16, and the Merger and Acquisition Return Period is 11 years.

Equity Risk Premium
The equity risk premium is the excess return I want to receive for investing in an equity as opposed to a risk free investment such as a treasury. I calculate my equity risk premium by multiplying the a company’s stock specific beta by the yield for a 10-year treasury and then adding my risk premium to that result. My calculated equity risk premium for Celanese Corporation is 7%.

Year-Over-Year Metrics
Several year-over-year metrics that are of interest to many investors are revenue growth, earnings growth, free cash flow growth, debt growth, price growth, and price growth. For Celanese Corporation, revenue increased by 17%, earnings increased by 67%, free cash flow increased by 47%, debt decreased by 3%, and the stock price decreased by 19%. Year to date the stock price is up 7% and the S&P 500 is up 8.02%.

Value Averages
One of the metrics I focus on is the stability of a company’s valuations. Earnings are subject to annual fluctuations which can impact year-over-year valuations. To offset some of that valuation volatility I use a running 5-year valuation average for comparison to my most recent valuation. For Celanese Corporation, my 5-year average valuation is $114.

Baseline Value
As an on-going concern, my current baseline or intrinsic value for the company is $109. Baseline valuations are based on free cash flow value, net current asset value, book value, tangible book value, earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of my baseline valuation.

Future Value
My future target price (based on a 5-year hold) for the stock is $178, which is an average annual return of 17%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 13% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Investors should always be aware that any investment has the potential for loss, and past performance is no guarantee of future results.

Risk/Reward Ratio
The risk/reward ratio measures how much potential reward there is for every invested dollar. I determine my risk/reward ratio by subtracting the current stock price from my termination target (sell price) and then dividing that result by my initiate (buy) target and a swing multiplier. The swing multiplier allows for stock purchases within a price range percentage. Typically I like to see the risk/reward ratio at 3 or higher. For Celanese Corporation my risk/reward ratio is 1.2.

Actionable Targets Estimates
Actionable targets are determined from my baseline valuation of the company as an ongoing concern. These targets consider an investing philosophy in which price determines return. My targets and default values are Initiate which is a 40% reduction from my baseline valuation, Reduce which is a 25% increase from my baseline valuation, and Terminate which is a 60% increase from my baseline valuation.

Celanese Corporation (NYSE: CE) – FYE 12/2018 – FAIRLY VALUED The stock is currently trading at levels above my most recent $66 initiate target, but below my most recent $109 baseline value estimate. Please See Linked PDF Worksheet

Financial Information
Financial information used in this report was gathered directly from the company’s latest SEC 10-K filing as obtained from the U.S. Securities and Exchange Commission website.

Disclosure: I hold no shares of the stock mentioned in this report.

Disclaimer: I am an individual investor not licensed or registered with any government or institutional financial ...

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