Olin Corp (OLN) Quarterly Valuation – March 2014

Olin-logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Olin Corp fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): 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.

OLN Chart

OLN data by YCharts

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

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  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 or be suitable for a defensive investor: Score = 4/5

  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 – FAIL
  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

Key Data:

Recent Price $27.18
MG Value $25.82
MG Opinion Fairly Valued
Value Based on 3% Growth $29.74
Value Based on 0% Growth $17.44
Market Implied Growth Rate 2.37%
NCAV -$10.85
PEmg 13.25
Current Ratio 2.06
PB Ratio 1.96

Balance Sheet – 12/31/2013

Current Assets $839,900,000
Current Liabilities $407,500,000
Total Debt $678,400,000
Total Assets $2,802,800,000
Intangible Assets $885,200,000
Total Liabilities $1,701,700,000
Outstanding Shares 79,400,000

Earnings Per Share

2013 $2.21
2012 $1.85
2011 $2.99
2010 $0.81
2009 $1.73
2008 $2.07
2007 $1.36
2006 $2.06
2005 $1.95
2004 $0.74
2003 $0.02
2002 -$0.63

Earnings Per Share – ModernGraham

2013 $2.05
2012 $1.94
2011 $1.93
2010 $1.46
2009 $1.81
2008 $1.77

Dividend History

OLN Dividend Chart

OLN Dividend data by YCharts


Olin Corp is a very intriguing company for both the Defensive Investor and the Enterprising Investor.  In fact, the company passes all of the requirements of the Defensive Investor and only fails the debt to net current asset requirement of the Enterprising Investor.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company as well as other opportunities through a review of 5 Undervalued Companies for the Enterprising Investor and 5 Undervalued Companies for the Defensive Investor.  From a valuation standpoint, the company appears to be fairly valued, having grown its EPSmg (normalized earnings) from $1.81 in 2009 to $2.05 in 2013.  While this level of demonstrated growth is on the lower end of most companies, it supports the market’s implied estimate of 2.37% earnings growth, leading the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety in relation to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Olin Corp (OLN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Olin Corp (OLN) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.





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