On Tuesday, RBC Capital made an adjustment to their financial outlook for shares of Olin Corporation (NYSE: NYSE:OLN), a chemical manufacturing company. The firm's analyst revised the price target downwards to $48 from the previous target of $52, while maintaining an Outperform rating on the stock.
The revision follows Olin's announcement of weaker than expected earnings for the second half of 2024, primarily due to the increased impact of hurricane-related disruptions, which are now estimated to cost the company approximately $135 million, up from the initial estimate of around $100 million.
The analyst noted that while Olin's Epoxy business experienced some positive price and cost performance in the third quarter, overall volumes continued to be weak. Moreover, the company is facing higher propellant costs and weaker commercial shipments in its Winchester segment, which are contributing to the downward pressure on earnings.
As a result of these factors, RBC Capital has lowered its EBITDA estimates for Olin for the fourth quarter of 2024 and the full years of 2024 and 2025 to $175 million, $855 million, and $1.15 billion, respectively, down from previous estimates of $240 million, $930 million, and $1.20 billion.
Despite the near-term challenges, RBC Capital remains optimistic about Olin's potential for recovery. The analyst's commentary highlighted that Olin has significant leverage to benefit from a demand rebound and believes that there is limited downside risk to the stock at its current trading levels, which are below a 7x multiple of the firm's projected EBITDA for 2025. This perspective suggests confidence in Olin's long-term prospects despite the current headwinds facing the company.
In other recent news, Olin Corporation faced operational challenges due to Hurricane Beryl, which resulted in a $110 million impact on third-quarter EBITDA. Despite these challenges, the company's chemicals segment exceeded expectations, generating $110 million, primarily due to an increase in caustic soda prices.
However, Olin's Winchester segment saw a downturn in commercial ammunition sales. The company ended the quarter with a strong financial position, holding $225.9 million in cash and around $1 billion in liquidity.
KeyBanc Capital Markets, Goldman Sachs, and Deutsche Bank have all recently adjusted their outlooks on Olin. KeyBanc lowered its price target to $56 while maintaining an Overweight rating, citing operational issues. Goldman Sachs maintained a neutral rating, highlighting concerns about the company's fourth-quarter EBITDA guidance. Deutsche Bank revised its price target for Olin from $48.00 to $45.00, maintaining a hold rating.
In the upcoming Investor Day, Olin plans to discuss strategic goals, financial performance, and potential growth opportunities. This includes the possibility of separating the Winchester business and partnerships with Dow. These are the recent developments for Olin Corporation.
InvestingPro Insights
Recent InvestingPro data provides additional context to RBC Capital's analysis of Olin Corporation (NYSE: OLN). The company's market capitalization stands at $4.86 billion, with a P/E ratio of 32.8, reflecting the current challenges in its earnings performance. Olin's revenue for the last twelve months as of Q3 2024 was $6.48 billion, showing a 9.9% decline, which aligns with the analyst's observations on weak volumes and hurricane-related disruptions.
InvestingPro Tips highlight both positive and negative aspects of Olin's financial position. On the upside, management has been aggressively buying back shares, potentially signaling confidence in the company's long-term prospects. Moreover, Olin has maintained dividend payments for 51 consecutive years, demonstrating a commitment to shareholder returns even in challenging times.
However, the stock has taken a significant hit over the last week, with a 1-week price total return of -8.85%, and is currently trading near its 52-week low. This price action reflects the market's reaction to the company's recent earnings challenges, as noted in the RBC Capital report.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Olin Corporation, providing a deeper understanding of the company's financial health and market position.
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