Olin Corp (OLN) Valuation

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Company Profile (obtained from Google Finance): Olin Corporation is a manufacturer concentrated in two business segments: Chlor Alkali Products and Winchester. Chlor Alkali Products manufactures and sells chlorine and caustic soda, sodium hydrosulfite, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. During the year ended December 31, 2008, the Chlor Alkali Products segment represents 72% of its sales. The Winchester products segment represents 28% of its 2008 sales. The Winchester products segment includes sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges. Its subsidiary, PCI Chemicals Canada Company/Societe PCI Chimie Canada, operates one chlor alkali facility in Becancour, Canada, which sells chlor alkali-related products within Canada and to the United States. The Company’s another subsidiary, Winchester Australia Limited, loads and packs sporting and industrial ammunition in Australia.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – FAIL
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 5/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last updated 12/21/09
• MG Value = $62
• MG Opinion = Undervalued
• Value based on 3% Growth = $23
• Value based on 0% Growth = $14
• Market-implied growth rate = 1.23%
• Net Current Asset Value (NCAV) = $6.77
• Current Ratio = 2.65
• Price to Book Ratio = 1.66

Key Data:

Balance Sheet – 9/30/2009

• Current Assets    $853,900,000
• Current Liabilities    $322,300,000
• Total Debt    $399,600,000
• Total Assets    $1,935,700,000
• Intangible Assets    $0
• Goodwill    $300,300,000
• Total Liabilities    $1,105,100,000
• Outstanding Shares    78,500,000

Earnings Per Share – Diluted

• 2009 (estimate) – $1.32
• 2008 – $2.07
• 2007 – $1.36
• 2006 – $1.70
• 2005 – $1.65
• 2004 – $0.74
• 2003 – $0.01
• 2002 – ($0.63)
• 2001 – ($0.21)
• 2000 – $1.80
• 1999 – $0.37

Earnings Per Share – Modern Graham

• 2009 (estimate) – $1.60
• 2008 – $1.66
• 2007 – $1.34
• 2006 – $1.11
• 2005 – $0.65
• 2004 – $0.22

Valuation History:

• 12/21/09 – Value $62, Actual Price $17.55, Undervalued & Enterprising
• 9/18/09 – Value $53, Actual Price $18.00, Undervalued & Enterprising
• 6/19/09 – Value $61, Actual Price $12.02, Undervalued & Enterprising