Long-established in the Chemicals industry, Celanese Corp (CE, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 1.84%, juxtaposed with a three-month change of -21.72%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Celanese Corp.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 8/10
- Growth rank: 3/10
- GF Value rank: 4/10
- Momentum rank: 2/10
Based on the above method, GuruFocus assigned Celanese Corp the GF Score of 65 out of 100, which signals poor future outperformance potential.
Understanding Celanese Corp Business
Celanese Corp is one of the world's largest producers of acetic acid and its downstream derivative chemicals, which are used in various end markets, including coatings and adhesives. The company is also one of the largest producers of specialty polymers, which are used in the automotive, electronics, medical, building, and consumer end markets. Additionally, Celanese Corp manufactures cellulose derivatives used in cigarette filters. With a market cap of $6.049 billion and sales amounting to $10.280 billion, the company maintains an operating margin of 10.11%. Despite its significant market presence, the company's financial metrics suggest potential challenges ahead.
Financial Strength Breakdown
Celanese Corp's financial strength indicators present some concerning insights about the company's balance sheet health. Celanese Corp has an interest coverage ratio of 1.54, which positions it worse than 88.08% of 1,191 companies in the Chemicals industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 1.36, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.07 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 2.5, which is worse than 96.69% of 1,390 companies in the Chemicals industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 25.75, which is above Joel Tillinghast's warning level of 4 and is worse than 95.41% of 1,199 companies in the Chemicals industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where Celanese Corp seems to falter, as evidenced by the company's low Growth rank. Over the past five years, Celanese Corp has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -42.5%, while the five-year growth rate is at -12.4%. These figures underscore potential challenges in the company's profitability.
Lastly, Celanese Corp's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
In conclusion, Celanese Corp's financial strength, profitability, and growth metrics, as highlighted by the GF Score, indicate potential underperformance. The company's high debt levels, low growth rates, and financial distress indicators suggest that it may face significant challenges in the future. Investors should carefully consider these factors when evaluating Celanese Corp's potential for long-term success. For those seeking companies with strong GF Scores, GuruFocus Premium members can find more options using the following screener link: GF Score Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
