Eastman Chemical Company ( EMN ) recently posted its highest yearly earnings per share in the company's history despite a challenging economic environment. This Zacks #1 Rank (Strong Buy) is also making a statement about the future as it announced the acquisition of specialty chemical maker Solutia, Inc. which will boost 2012. EMN is also a value stock, with a forward P/E of just 10.7.

Eastman manufactures specialty chemicals, polymers and specialty plastics which are used in inks, coatings, adhesives, sealants and textiles for global customers.

Eastman Makes a Bid for Solutia

On Jan 27, Eastman announced it had entered into a $4.7 billion agreement to acquire Solutia, a specialty chemical maker with 3400 employees in 50 worldwide locations. Solutia shareholders will receive cash and stock valued at $27.65 per Solutia common share.

The acquisition is expected to broaden Eastman's reach into emerging markets, especially Asia Pacific. The company expects its Asia Pacific compounded annual growth to approach 10% over the next several years.

The deal is projected to be immediately accretive and produce strong cash generation.

New 2012 and 2013 Guidance

Taking into account the Solutia acquisition, Eastman revised its 2012 earnings guidance to be about $5, excluding acquisition-related costs and charges.

It also raised its 2013 EPS guidance to greater than $6 a share.

This comes on top of its general 2012 outlook. While it expects to see continued economic uncertainty, Eastman forecasted accelerated economic activity in the second half of the year, especially in Asia Pacific and North America.

Zacks Consensus Estimates Rise

Given the Solutia announcement and guidance, it's not surprising that the analysts have been busy revising their estimates.

4 out of 6 estimates have risen for 2012 in the last 7 days. This has pushed the Zacks Consensus Estimate up to $4.91 from $4.61. That is not quite as high as the company had guided.

It is earnings growth of 7.8%.

3 estimates were also revised higher for 2013. The 2013 Zacks Consensus climbed to $5.66 from $4.96 in the prior week. This is also below the company's projected EPS. However, it is earnings growth of 15.2%.

Best Yearly EPS Ever

On Jan 26, Eastman reported fourth quarter and full year results. While it missed on the fourth quarter Zacks Consensus by 9 cents, its full year EPS of $4.56 was the best in the company's history. 2011 easily crushed the 2010 result of $3.48 per share.

Sales jumped 18% to $1.7 billion mainly due to higher selling prices and sales volume. Sales volume was boosted by the Performance Chemicals and Intermediates segment which saw revenue increase by 33%.

Still Has Attractive Valuations

Eastman has been a value stock the last several years. Shares sold off big in the summer of 2011 but have now soared to 2-year highs.

Yet shares still have a P/E of 10.7, which is under the S&P 500 average of 12.5.

Its price-to-book ratio is a little hotter than it used to be, however, at 3.9. I usually look for a P/B ratio under 3.0 for value stocks.

But the company has other strong fundamentals, including an outstanding 1-year return on equity (ROE) of 34.7%. Its peers average a ROE of just 19.8%.

Shareholders are also rewarded with a dividend yielding 2.1%.

The chemical sector is at ground zero of the global economy. Eastman negotiated its way through the minefield in 2011. Growth is expected to slow in 2012 but the valuations are still attractive.

This Week's Value Zacks Rank Buy Stocks

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The chemical industry is still hanging tough in 2012 despite the cloudy Eurozone and China outlook. Ashland Inc. ( ASH ) recently blew by the Zacks Consensus Estimate for Q1. Yet this Zacks #1 Rank (Strong Buy) is still a value stock with a forward P/E of just 11.3. Read the full article.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com . She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec .

 
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