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Fundamental analysis: OLIN CORPORATION (#OLN)

Olin Corporation is an American manufacturer of ammunition, chlorine and sodium hydroxide. Based in Clayton, Missouri, it has its roots in two companies, both founded in 1892: Franklin W. Olin's Equitable Powder Company and Mathieson Alkali Works

OLN presented the budget for the first quarter of 2021, which turned out to be better than expected. The company significantly increased its profits, free cash flow and debt repayment.

Lately the stock has received positive ratings from the analyzes that confirm the purchase with a price target ranging between $ 60.00 and $ 70.00.

⚡️Growth factors:

  • Multi-year contract with Lake City Army Ammunition Plant (LCAAP): largest producer of small arms ammunition for the US military

  • Olin expects the contract with LCAAP will increase Winchester's annual revenues by $ 450- $ 550 million.

  • Olin Corporation recently entered into an agreement with Ashta Chemicals, Inc., a leading producer of potassium hydroxide (KOH) for the purchase and sale of chlorine.

  • The company expects price increases for chlorine, epichlorohydrin, epoxies, bleach, ethylene dichloride and chlorinated organics that will contribute to its chemical operations in the second quarter.

  • All 3x business lines had significant results in Q2 2021::

- CHLOR ALKALI PRODUCTS AND VINYLS: Q2 2021 sales $ 967.3m vs Q2 2020 $ 651.2, increase due to both an increase in raw material costs and volumes - EPOXY: Q2 2021 sales $ 850.m vs Q2 2020 $ 397.4m, increase mainly due to increased product margins

- WINCHESTER: Q2 2021 sales $ 404.0m vs Q2 2020 $ 192.6m, increase due to increased contracts and sales in both commercial and private sectors

📖 Financial indicators:

  • High Growth Earnings: OLN is expected to become profitable in the next 3 years.

  • Short-Term Liabilities: OLN's short-term assets ($ 2.2 billion) outweigh its short-term liabilities ($ 1.3 billion).

  • Long-Term Liabilities: OLN's short-term assets ($ 2.2 billion) do not cover its long-term liabilities ($ 5.2 billion)

  • Debt level: OLN's debt / equity ratio (163.1%) is considered high.

  • Debt reduction: OLN's debt / equity ratio has increased from 158.6% to 163.1% over the past 5 years.

  • Debt coverage: OLN's debt is well covered by operating cash flow (31.6%)

  • Below Fair Value: OLN is trading below fair value by more than 20%.

Entry range: $44.00 - $41.00

Target: $ 60.00

Stop loss: $ 32.00

OTB Global Investments

4 August 2021

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