Analysts' Choice: Despite Rally, We Still Want Chemours

9/25/2017


  Recent Price
$52
  Dividend
$0.12
  Yield
0.2%
  P/E Ratio
22
  Shares (millions)
191
  Long-Term Debt As % Of Capital
88%
  52-Week Price Range
$52.09 - $14.07

A diversified chemical maker spun off from DuPont in July 2015, Chemours ($52; CC) supplies ingredients to the plastics, coatings, refrigeration, mining, and oil-refining markets. Its products include fluoroproducts, chemicals with a high temperature resistance used for refrigerants and industrial resins and coatings.

Chemours shares have shown a similar resistance to heat — in the form of elevated investor sentiment. The stock has returned 135% so far this year, setting 28 all-time highs along the way.

Yet the stock seems reasonably valued, earning a Quadrix Value score of 73 and trading at a discount to peers. Chemours still looks timely in Quadrix, scoring above 90 for Momentum, Earnings Estimates, and Performance. Recent operating momentum reflects management's effective execution and improving conditions in the company's end markets. With an Overall rank of 98, Chemours is a Buy and a Long-Term Buy.

Business breakdown

Chemours enjoys a broad customer base, with 3,800 customers in more than 130 countries. No customer accounts for more than 10% of sales. The company derives about 45% of sales from North America.

Volumes surged 15% in the first half of 2017, while prices rose about 6%. These trends, combined with management's cost-cutting initiatives, helped operating profit margins expand to 18.9% in the 12 months ended June from 10.4% in the same period a year earlier.

A restructuring plan, begun in 2015, led Chemours to divest or close four businesses in its chemical-solutions unit. Sales for the segment (10% of revenue in the 12 months ended June) are down 41% in the past year. The chemical-solutions segment supplies raw materials and catalysts used in gold production, water treatment, and oil and gas production.

Chemours' primary product is titanium dioxide (46% of revenue), a pigment that delivers whiteness, brightness, and protection from sunlight for industrial coatings and packaging products. The segment's sales climbed 13% in the year ended June, while fluoroproducts (44%) posted 15% growth.

Chemours shares can be volatile, trading as low as $13 and as high as $52 over the past year. Although the stock now trades near the top of that range, a healthy dose of caution remains baked into the price. At 22 times trailing earnings, the stock trades at a modest discount to the average of 23 for S&P 1500 chemicals stocks. Shares trade at 15 times estimated 2017 profits, versus the peer-group
average of 22. And the stock trades at 11 times projected 2018 profits, compared to the industry average of 18.

Profit estimates for Chemours are rising, unlike most chemicals stocks. In August, management boosted its 2017 guidance for operating profit, now implying 70% to 83% growth. The consensus now projects that per-share profits will double in the second half of the year on 14% higher revenue. The consensus anticipates 33% profit growth in 2018.

An annual report for The Chemours Co. is available at 1007 Market St., Wilmington, DE 19899; (302) 773-1000; www.chemours.com.

CHEMOURS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '17
0.87
vs.
0.27
15%
46.02
-
34.70
27 - 20
Mar '17
0.75
vs.
0.06
11%
39.02
-
20.76
38 - 20
Dec '16
0.08
vs.
0.01
-3%
27.29
-
14.41
29 - 15
Sep '16
0.61
vs.
0.40
-6%
16.08
-
5.82
22 - 8
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
5.40
1.02
0.12
27.29
-
3.06
27 - 3
2015
5.72
0.79
0.06
22.25
-
4.58
28 - 6
2014
6.43
NA
NA
NA
NA
2013
6.86
NA
NA
NA
NA
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
98
99
73
77
46
91
98

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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