Company ProfileÂ (obtained fromÂ Google Finance):Â Olin Corporation is a manufacturer focused in three business segments: Chlor Alkali Products, Chemical Distribution and Winchester. Chlor Alkali Products manufactures and sells chlorine and caustic soda, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. Chemical Distribution manufactures bleach products and distributes caustic soda, bleach products, potassium hydroxide and hydrochloric acid. Winchester products include sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges. The Company’s subsidiary, Olin Canada ULC, operates one chlor alkali facility in Becancour, Quebec, which sells chlor alkali-related products within Canada and to the United States and also sells and distributes ammunition within Canada. On August 22, 2012, the Company acquired K. A. Steel Chemicals Inc. (KA Steel). KA Steel is a distributor of caustic soda in North America and manufactures and sells bleach in the Midwest.
Defensive and Enterprising Investor TestsÂ (What is the significance of these tests, and what is PEmg ratio?):
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 7/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- 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
- Moderate PEmg ratio – PEmg is less than 20 – PASS
- 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 or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary (Explanation of the ModernGraham Valuation Model)
|Value Based on 3% Growth||$29.45|
|Value Based on 0% Growth||$17.27|
|Market Implied Growth Rate||2.79%|
Balance Sheet – 9/30/2013Â
Earnings Per Share
Earnings Per Share – Modern GrahamÂ
Olin Corporation appears to be a great company for both Defensive Investors and Enterprising Investors. Â In fact, it passed all of the requirements of the Defensive Investor, which is not an easy feat to accomplish. Â For the Enterprising Investor, the only negative is the high level of debt relative to current assets. Â Either investor type should feel very comfortable proceeding with further research, beginning with a review of the 5 Undervalued Companies we reviewed last weekend. Â However, from a valuation perspective the company would appear to be overvalued at the present time. Â The EPSmg (normalized earnings) have only grown from $1.77 in 2008 to an estimated $2.03 for 2013. Â This amount of growth does not quite support the market’s implied estimate of 2.79%, though it is very close to our margin of safety and some arguments could certainly be made in the comments below about whether the company is actually fairly valued.
What do you think? Â Do you agree that Olin Corporation is overvalued? Â What would be your assessment? Â Is the company suitable for both Defensive Investors and Enterprising Investors? Â Leave a comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
If you like our valuations, why not check outÂ ModernGraham Stocks & Screens? Â It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in Olin Corporation (OLN) at the time of publication and had no intention of entering into a position within the next 72 hours.
Photo Credit: Â Andrew Magill