On Monday, Piper Sandler updated its outlook on Olin Corporation (NYSE:NYSE:OLN) shares, increasing the price target to $75 from the previous $72 while maintaining an Overweight rating on the stock. The revision reflects the firm's confidence in the company's margin leverage and earnings potential.
Olin Corporation, known for its chlor/alkali products, operates its facilities at just over 50% capacity, a strategic choice that typically results in negative margins. However, Olin's margins are currently positive, an uncommon scenario for the industry.
The prices for chlorine and caustic soda are on an upward trajectory, and the company is experiencing rising volumes in these segments. Additionally, the epoxy business, which faced significant EBITDA losses in the second half of 2023, has seen a turnaround and is now generating slightly positive EBITDA thanks to the company's realignment efforts.
The analyst also highlighted the steady performance of the Winchester segment, which is anticipated to grow due to new military contracts secured by Olin. As the company expands its volumes in the epoxy and chlor/alkali segments, a robust acceleration in earnings is expected.
Piper Sandler has set the highest EBITDA estimate for Olin for the year 2025 at $1.8 billion, which surpasses other estimates on the street. This projection is based on an anticipated increase in earnings driven by improved fixed cost absorption. The firm anticipates that second-half 2025 earnings will annualize at approximately $1.9 billion, which is still below their midcycle EBITDA estimate and far from the peak.
The new price target of $75 is founded on an enterprise value to EBITDA (EV/EBITDA) multiple of 6.5 times the forecasted 2025 EBITDA of $1.8 billion. This multiple is an increase from the previously used 6.0 times and reflects a slight reduction in 2025 earnings forecasts but with a higher degree of confidence in Olin's capacity to achieve these results. The EV/EBITDA multiple often rises for cyclical companies as earnings fall below midcycle levels, indicating a market expectation of future earnings recovery.
InvestingPro Insights
In light of Piper Sandler's updated outlook on Olin Corporation (NYSE:OLN), it's worth considering some additional insights from InvestingPro. Notably, Olin's management has been actively engaged in share buybacks, signaling confidence in the company's value. This is complemented by a high shareholder yield, which could be attractive to investors seeking returns in the form of dividends and buybacks. Additionally, Olin has a track record of maintaining dividend payments for an impressive 51 consecutive years, underscoring its commitment to shareholder returns.
From a financial standpoint, Olin's adjusted price-to-earnings (P/E) ratio for the last twelve months as of Q1 2024 stands at 17.96. The company's revenue for the same period is reported at $6.624 billion, although it experienced a revenue decline of 24.38% compared to the previous year. Despite this, Olin's valuation implies a strong free cash flow yield, which could be a positive indicator for investors looking at the company's ability to generate cash after capital expenditures.
For investors interested in further analysis and tips, InvestingPro offers additional insights on Olin Corporation. There are more InvestingPro Tips available, which can be accessed at https://www.investing.com/pro/OLN. To enhance your investment research, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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