A Look At Olin (OLN) Valuation After First Quarter Loss And Weaker Sales
What Olin’s Latest Earnings Mean For Shareholders
Olin (OLN) reported first quarter results that included sales of US$1,583 million and a net loss of US$83 million, compared with sales of US$1,644.2 million and net income of US$1.4 million a year earlier.
This move from a small profit to a loss, along with lower quarterly sales, puts the recent share price performance in a different light and gives you fresh numbers to assess the stock’s risk and reward trade off.
See our latest analysis for Olin.
The earnings setback has been met with selling pressure, with the 1 day share price return of Olin down 3.46% and the 30 day share price return down 3.53%. However, the year to date share price return of 24.27% and 1 year total shareholder return of 31.03% still point to positive momentum relative to the much weaker 3 year and 5 year total shareholder returns.
If this earnings move has you reassessing your exposure, it can help to see what else is out there via a focused stock screener such as 19 top founder-led companies
Olin now trades below its analyst price target and at a sizeable discount to one estimate of intrinsic value. At the same time, the stock also carries fresh loss figures and mixed long term returns. So are you looking at a genuine opportunity, or a market that is already pricing in a recovery?
Most Popular Narrative: 2% Overvalued
The most followed valuation narrative puts Olin’s fair value at $26.29, which sits slightly below the last close of $26.78, and frames the recent earnings setback against relatively modest upside.
The analysts have a consensus price target of $26.29 for Olin based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $18.0.
The fair value hinges on earnings turning around, margins lifting from current loss making levels, and revenues grinding higher over time. Curious how those moving parts fit together, and what kind of profitability path is baked into that $26.29 figure? The full narrative lays out the step by step assumptions behind those expectations.
Result: Fair Value of $26.29 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, there are clear pressure points, including prolonged global overcapacity that could keep chlor alkali margins under strain, as well as ongoing weakness in Winchester’s commercial ammunition profits.
Find out about the key risks to this Olin narrative.
Another View: Cash Flows Point To A Different Story
While the analyst narrative suggests Olin is only slightly overvalued around $26.29, the SWS DCF model paints a different picture. On that approach, the stock at $26.78 trades at a steep discount to an estimated future cash flow value of $70.95. This raises the question of whether earnings based targets are missing something material.
Look into how the SWS DCF model arrives at its fair value.
Next Steps
With sentiment clearly mixed, this is a moment to move quickly and test the story against your own criteria, starting with the 3 key rewards and 2 important warning signs.
Looking for more investment ideas?
If you stop with just one stock, you may miss better fits for your goals, so take a few minutes to scan other opportunities before moving on.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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