Chemical products and ammunition manufacturer Olin Corporation (OLN) in Clayton, Miss., witnessed a significant jump in revenue growth in the fourth quarter, driven by sequential pricing improvement and its strategic initiatives. The company launched its Shoot United initiative in its last reported quarter to advance recreational shooting.
OLN’s earnings from its Epoxy materials segment stood at $795.7 million, up 53.1% year-over-year during the fourth quarter. Shares of the vertically integrated manufacturer have risen 58.1% over the past year thanks to the bullish investor sentiment surrounding the stock and the growing demand for the company’s products for military and commercial purposes.
A substantial rise in the demand for caustic soda and its derivatives in various industries should bolster the growth of its Chlor Alkali Products and Vinyls business. In addition, because the chemical products company focuses on organic and inorganic growth initiatives, it is well-positioned to deliver solid returns.
Here is what we think could shape OLN’s performance in the coming months:
Launch of New Initiative
During the fourth quarter, OLN introduced a dynamic initiative known as Shoot United to promote the benefits of shooting sports and attract adult participants. The company plans to share engaging content related to shooting throughout 2022 and 2023 through its own digital and social platforms. This initiative should help drive awareness of its Winchester business and enable it to capitalize on shooting’s growing popularity.
Solid Growth Story
The $2.35 consensus EPS estimate for the current quarter, ended March 31, 2022, indicates a 52.6% improvement year-over-year. Furthermore, its EPS is expected to rise 7.6% next quarter and 11.2% in its fiscal 2022. Analysts expect OLN’s revenues to grow 27.7% year-over-year to $2.45 billion in the current quarter, 17.8% year-over-year to $2.49 billion next quarter, and 7.5% in the current year.
OLN’s revenue and EBITDA have increased at CAGRs of 8.7% and 27.4%, respectively, over the past three years. Also, its EPS grew at an annualized 59.8% over this period.
OLN’s sales increased 46.9% from the prior-year quarter to $2.43 billion in the fourth quarter, ended December 31, 2021. Its Chlor Alkali Products and Vinyls sales came in at $1.24 billion for the quarter compared to $793.7 million in the fourth quarter of 2020. The increase in sales was due primarily to higher pricing. Furthermore, the company reported $306.6 million in net income during this period compared to a $33 million net loss in the prior-year period. OLN’s adjusted EBITDA rose 178.9% year-over-year to $686.7 million.
In terms of non-GAAP forward P/E, OLN is currently trading at 5.43x, which is 60.9% lower than the 13.89x industry average. Its 0.79x forward P/Sis 46.4% lower than the 1.47x industry average. And the stock’s forward EV/EBITDA and non-GAAP PEG of 4.06x and 0.04x respectively, are lower than the 7.78x and 1.19x industry averages.
POWR Ratings Reflect Promising Outlook
OLN has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. OLN has a Quality Grade of B. This justifies the stock’s EBIT margin of 21.4%, which is 53.2% higher than the 14% industry average.
Also, in terms of Value Grade, OLN has a B. The stock’s lower-than-industry valuation multiples are in sync with this grade.
Click here to see the additional POWR Ratings for OLN (Sentiment, Stability, Growth, and Momentum).
The stock is ranked #17 of 88 stocks in the A-rated Chemicals industry.
Note that OLN is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
OLN’s strategic initiatives to drive up ammunition demand and sustainable growth across all its business categories should position it uniquely to benefit from the higher pricing. Also, the growing demand for its chemical products should further boost the sales of the chemical manufacturer. Thus, we think it could be wise to bet on the stock now.
How Does Olin Corporation (OLN) Stack Up Against its Peers?
While OLN has an overall POWR Rating of B, one might want to consider investing in the following Chemical stocks with an A (Strong Buy) rating: ICL Group Ltd. (ICL), Covestro AG (COVTY), and Valhi, Inc. (VHI).
Note that ICL is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
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OLN shares fell $0.72 (-1.51%) in premarket trading Monday. Year-to-date, OLN has declined -16.83%, versus a -9.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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