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Solutia to Take Eastman Places

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This company shares a part of its name with the beleaguered Kodak, but fortunately, that's the only common thing between the two. While Eastman Kodak's picture has gone black, Eastman Chemical (NYSE: EMN  ) -- which was spun off from Kodak two decades ago -- is doing just fine.

The chemical maker reported a decent fourth quarter and caught analysts off guard with a mega deal announcement. A closer peek into it will tell us why we should get serious about this stock.

Way to go
Although Eastman's fourth-quarter earnings from core operations increased marginally to $0.71 per share from $0.70 in the same quarter last year, its revenues grew by a solid 18% from the previous year. The good part is unlike most chemical companies, higher prices weren't the only factor behind the elevated revenues. Eastman's sales volumes (particularly for ethylene) also went up during the quarter.

Other than the decent top-line growth, what will take the company far are its recent acquisitions. The latest addition, which is also the biggest, is Solutia (NYSE: SOA  ) . The announcement of the deal set Eastman's share price on fire, and rightly so because it looks like a winner.

I like this move
Eastman has been on an acquisition spree lately, lapping up three companies in the last couple of months. The deal presents Eastman with a huge opportunity to expand its business in the emerging markets, especially Asia-Pacific. Considering Eastman currently derives 23% and Solutia 30% of their revenues from the region, the combined entity is poised to grab a much bigger share of the Asian pie.

The deal is also likely to result in cost advantages for Eastman. Some of Solutia's technologies complement Eastman's, and the two also share some common end markets, such as auto. This, along with synergies such as raw material sourcing and a supply chain, is expected to result in annual cost savings of nearly $100 million by 2013.

What's more, Eastman expects the deal to be immediately accretive to earnings. It has thus set its full-year earnings per share outlook at $5 for this year and $6 per share for 2013. Note that Eastman's last year EPS of $4.56 was a record for the company.

The Foolish bottom line
Eastman has shown promise when it comes to performance and growth in recent years. The Solutia deal now gives us the perfect reason to keep the stock on our radar.

To stay updated on Eastman as it integrates Solutia into its business and becomes stronger, add it to our watchlist service, My Watchlist. It's free, and it helps you constantly stay updated on news and analysis on your favorite companies.

Click here to add Eastman to your stock watchlist.

Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Related Tickers

10/26/2016 4:02 PM
EMN $67.07 Up +0.67 +1.01%
Eastman Chemical CAPS Rating: ****
SOA.DL2 $27.82 Down +0.00 +0.00%
Solutia Inc. CAPS Rating: ****