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Eastman Chemical Co (NYSE:EMN) investor's have been rewarded alongside rising global industrial production, and will continue to reap benefits as recovery continues to boost key Eastman markets including packaging, cigarettes, industrial chemicals, transportation, durable goods and electronics.

As consumer's buy more cars, demand for Eastman's paint increases. As emerging markets consume more cigarettes, demand for Eastman's acetate tow increases. As retail stores restock textiles, demand for Eastman's fiber products increase. And, as consumer spending on household furniture, flooring and wood products returns, various other Eastman products benefit.

Eastman's success is no secret. The stock has rallied 87% since last June. But, despite the move, Eastman still trades at a reasonable 14x 2011 Street estimates, the middle of its 5-year PE range. And with estimates of $8.82 for 2012, up from $8.01 60 days ago, a similar valuation would imply a target price of $123 - up 30% from here. The reason valuation has stayed in check is simple. Eastman is growing earnings faster than the Street has expected.

And, the good times are continuing into 2011. Just last week, Eastman, boosted its outlook to $8 for 2011 and $2 for Q1, nicely above analyst expectations of $7.94 and $1.80 respectively. And, Eastman expects to grow 10% annually through 2013, when it expects to earn $10 per share.

Eastman's profit engine has benefited both by price and volume increases across its divisions. The company’s coatings, adhesives, specialty polymers and inks (CASPI) segment is expected to see operating margins rise to 17-20% over the coming years. CASPI revenue rose 16% in Q4 and 29% in 2010 YoY, thanks to packaging and transportation related sales. Rising global economic activity is boosting inventory levels again - and that's good news for Eastman's packaging products. Meanwhile, price increases have offset higher input costs and more manufacturing activity has boosted margins as they're leveraged against fixed costs.

Mid to high single digit growth in emerging market cigarette use has re-energized Eastman's fiber division, as 80% of acetate tow production is used to make cigarette filters. More than 75% of Eastman's Fiber segment sales are ex- North America and a good portion of the segment's success is tied to higher acetate tow volume, thanks mostly to Asia. In response, Eastman has a new South Korea acetate tow manufacturing facility to better serve the market and plans a new facility in China by 2013. Across the division, fiber revenue rose 18% in Q4 and 11% in 2010, thanks to higher acetate tow and yarn volume

Eastman has also seen strength in its specialty plastics segment. Specialty plastics sales rose 26% in Q4 and 39% in 2010, YoY, thanks in part to packaging volume growth. The company is increasing capacity to its cellulose esters for LCD's. And, new products in the works include its Tritan co-polyesters.

At Eastman's performance chemicals and intermediaries segment, olefin and acetyl based products are expected to boost sales 10% annually through 2013. PCI revenue, which comes from sales into agrochemical, beverages, nutrition, pharmaceutical, coatings, flooring, etcetera, rose 31% in Q4 and 49% in 2010. Sales and volume growth, particularly for olefin-derivative products, has allowed Eastman to re-open capacity, including the December re-opening of its Texas olefin cracking facility. And that's good news for further volume growth this year.

Given Eastman has beaten the Street in each of the past 4 quarters, its likely analysts will continue to chase guidance higher, providing support to the stock. Meanwhile, the 2% yield adds an additional incentive for investors. And, the company announced a $300 million buyback last month after buying back $280 million last year.

Despite all this good news, there are still five days to cover held short; suggesting any additional strength will drive pessimistic holders to cover positions, helping support prices on pullbacks.

Source: Eastman Chemical Is Growing Profits Faster Than Forecasts