We came across a bullish thesis on Celanese Corporation (CE) on Substack by Kyler Johnson. In this article, we will summarize the bulls’ thesis on CE. Celanese Corporation (CE)’s share was trading at $76.50 as of Nov 25th. CE’s trailing and forward P/E were 7.62 and 7.97 respectively according to Yahoo Finance.
A large chemical production factory, with billowing smoke in the background.
Celanese Corporation, a global materials and chemicals company founded in 1918 and headquartered in Texas, operates 58 production facilities worldwide. The company is divided into two segments: Engineered Materials and the Acetyl Chain. Engineered Materials, which accounts for 56% of revenue, is project-focused and offers a range of customized products across diverse industries, including automotive, electronics, medical devices, and industrial applications. The Acetyl Chain, making up the remaining 44% of revenue, produces chemicals used both externally and within Celanese’s operations, supporting applications in paints, pharmaceuticals, agriculture, and construction. Serving a broad array of industries, the company’s performance is closely tied to global manufacturing and goods consumption trends.
Celanese’s market value has declined significantly from its all-time highs, driven by concerns over weakening demand and a substantial debt load, notably from its $11 billion acquisition of Dupont’s Mobility and Materials (M&M) segment. While the acquisition has added a revenue stream of $5 billion and a potential $400 million in additional free cash flow (FCF) by 2026, the increased leverage has raised solvency concerns. Management has outlined cost-cutting measures and operational adjustments to address the situation, including idling production facilities, reducing capital expenditures, cutting dividends by 95% starting in 2025, and leveraging term loans to manage near-term debt obligations. These moves aim to generate liquidity and stabilize the balance sheet amidst a challenging manufacturing environment.
The company’s debt profile is particularly concerning, with $6.3 billion maturing over the next three years. With only $800 million in cash on hand and annual FCF recently at $840 million, the path to deleveraging hinges on stringent cost management, incremental FCF improvements, and potential asset divestitures. Management projects that operational efficiencies, combined with synergies from the M&M acquisition, will bolster cash flow by 2026, enabling Celanese to address $1 billion in debt that year. However, the substantial $3.14 billion maturing in 2027 will likely require refinancing, asset sales, or a combination of both. Celanese’s solid credit rating and the prospect of declining interest rates could make refinancing a viable option, but execution risks remain.
Despite its leverage, Celanese’s underlying business is strong, characterized by robust economies of scale and a history of solid returns on invested capital. Its Engineered Materials and Acetyl Chain segments provide resilience through diverse applications and industries, while management has historically demonstrated a commitment to shareholder returns via dividends and buybacks. The company is also exploring divestitures, which could further alleviate debt burdens, albeit at the potential expense of future cash flow.
Assuming the global manufacturing slowdown does not deepen into a severe recession, Celanese has a plausible path to recovery. By 2027 and beyond, a leaner balance sheet and operational improvements could position the company to generate over $1.5 billion in annual FCF. Trading at a market cap of $8.2 billion, this suggests significant upside potential, with a plausible trajectory toward an $18 billion valuation as manufacturing rebounds and leverage normalizes. While risks remain, particularly regarding debt management and global macroeconomic conditions, Celanese presents a compelling case for long-term investors willing to navigate near-term uncertainties.
Celanese Corporation (CE) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held CE at the end of the third quarter which was 29 in the previous quarter. While we acknowledge the risk and potential of CE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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