Piper Sandler analyst Charles Neivert upgraded Celanese Corporation (NYSE:CE) to Neutral from Underweight, raising the price target to $135 from $112.
While the company is still far from out of the woods regarding its recovery from acquisition-related challenges, the analyst says that the downside risk has moderated, and the risk/reward profile has shifted to a more neutral state.
According to the analyst, the shares tend to be more sensitive to interest rate issues than most of its peers, considering the still high level of debt and the need to raise cash continually to bring debt to a more conservative level.
While the debt structure has been substantially stretched out, the analyst says CE still needs to bring it into compliance with covenants, especially at the end of 2024, when covenants tighten key debt metrics.
Per Neivert, CE is near reaching a risk/reward equilibrium but years away from shareholder-friendly actions like share repurchases and increasing the dividend.
Although CE is looking for a 3x net debt/EBITDA multiple by the end of 2024, the analyst believes this may be difficult to achieve without creating other problems, which will need to be rectified later.
The analyst projects significant improvement in this metric during 2024, and sees that the 3x level does not represent the end of the debt reduction.
Per the analyst, this metric should be held closer to 2x as a baseline, given the cyclicality of the chemical business.
Price Action: CE shares are trading lower by 0.02% to $130.54 on the last check Tuesday.
