Celanese Corporation (CE) High Margins Not Sustainable

July 17, 2015

Hassan Ahmed, Founder and Head of Research of Alembic Global Advisors, says he believes Celanese Corporation’s (CE) margins have been unnaturally high and aren’t sustainable. He says the stock may be overvalued.

“It’s an extremely well-running company, but they had a large earnings beat in 1Q and, on the back of that, the stock rallied very high,” he says. “I think there is an expectation in the market that the strength that was exhibited in 1Q may actually carry on over the next couple of quarters, and I do not believe that may happen.”

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Ahmed says that the first quarter was a bit of an anomaly for Celanese because crude oil prices fell drastically. As a result, the company’s raw material price fell significantly, but their product prices remained in the same range.

“They will eventually move with a slight lag. So because of that lag effect, margins for the company were unnaturally high, which in my mind is not sustainable,” he says. “Keep in mind that the asset yields chain, the main chain of products that they produce, is extremely oversupplied right now.”