On Friday, Wells Fargo updated its outlook for Celanese Corporation (NYSE: NYSE:CE), a global chemical and specialty materials company. The firm's analyst has increased the price target to $195.00 from the previous $180.00, while reiterating an Overweight rating on the stock.
The optimism from Wells Fargo stems from recent due diligence efforts, including a meeting with Celanese's acetyls expert, which have led the firm to believe that the dynamics within the acetyl sector are stabilizing. This stability is expected to contribute to a rise in Celanese's earnings per share (EPS) in the second quarter of 2024 compared to the first quarter.
The new price target of $195.00 is based on a 12.0x multiple of the estimated 2024 enterprise value to EBITDA (EV/EBITDA), which is considered to be around the midpoint of the average range for specialty chemicals companies, which typically falls between 8-15x. This valuation also takes into account a more conservative 8.5x multiple of the firm's mid-cycle EBITDA estimate.
Wells Fargo's mid-cycle EBITDA estimate for Celanese stands at $3.6 billion. This figure includes $2.6 billion from the Engineered Materials segment, with $1.3 billion attributed to the Materials Solutions unit, and $1.4 billion from the Acetyl Chain.
Moreover, the acetate tow is projected to contribute $300 million, while Other Activities are expected to have a negative impact of $400 million on the EBITDA. The revised stock price target reflects confidence in Celanese's financial performance and the underlying industry conditions as they move through 2024.
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