Olin Corporation Is Worthy Of Research By Defensive Investors

Sep. 30, 2014 12:25 PM ETOlin Corporation (OLN)1 Comment
Benjamin Clark profile picture
Benjamin Clark
5.71K Followers

Summary

  • OLN is suitable for both Defensive Investors and Enterprising Investors following the ModernGraham approach.
  • According to the ModernGraham valuation model, the company is fairly valued at the present time.
  • The market is implying 2.58% earnings growth over the next 7-10 years.

Olin Corporation (NYSE:OLN) is intriguing to investors on many levels, due to its stable earnings, low price to book value, and consistent dividends. Such traits attract the eyes of value investors, but whether the company is a good investment requires analysis. What follows is an analysis of Olin Corporation based on the ModernGraham valuation model.

The ModernGraham valuation model is a modernized version of the teachings of Benjamin Graham. Graham taught that Intelligent Investors must use fundamental analysis of investment opportunities to determine their intrinsic value for comparison to the present market price. When the intrinsic value is well above the market price, the company is very attractive and presents a potential for profit.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 More Undervalued Companies for the Defensive Investor. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries.

OLN Chart

OLN data by YCharts

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

  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 - FAIL
  6. Moderate PEmg (price over normalized earnings) 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 $25.75
MG Value $32.30
MG Opinion Fairly Valued
Value Based on 3% Growth $27.34
Value Based on 0% Growth $16.03
Market Implied Growth Rate 2.58%
NCAV -$10.02
PEmg 13.66
Current Ratio 2.23
PB Ratio 1.80

Balance Sheet - 6/30/2014

Current Assets $879,000,000
Current Liabilities $394,300,000
Total Debt $676,600,000
Total Assets $2,790,700,000
Intangible Assets $877,900,000
Total Liabilities $1,666,900,000
Outstanding Shares 78,600,000

Earnings Per Share

2014 (estimate) $1.42
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

Earnings Per Share - ModernGraham

2014 (estimate) $1.89
2013 $2.05
2012 $1.94
2011 $1.93
2010 $1.46
2009 $1.81

Dividend History

OLN Dividend Chart

OLN Dividend data by YCharts

Conclusion:

Olin Corporation remains a company worthy of further research by both the Defensive Investor and the Enterprising Investor. The Defensive Investor's only official initial concern is the low level of earnings growth over the last ten years. The earnings grew only from an average of $1.79 to an average of $1.83 during that time period, well below the Defensive Investor's requirement. In addition, the Defensive Investor would like to see more growth in the dividend, which has not risen for over ten years.

The Enterprising Investor's only concern is the level of debt relative to the net current assets, but the company has shown sufficient growth and stability over the last five years to satisfy the less conservative investor's needs. As a result, both Defensive Investors and Enterprising Investors should feel comfortable proceeding with research into the company and comparing it to other companies.

The intrinsic value of the company falls within a margin of safety in relation to the price, so the company appears to be fairly valued at this time. The company has shown a level of earnings growth of around 5.76%, having grown its EPSmg (normalized earnings) from $1.46 in 2010 to an estimated $1.89 for 2014. ModernGraham estimates continued growth of around 4.32%, having lowered the historical growth by a margin of safety, and the market is implying a growth rate of only 2.58%. As a result, investors are encouraged to consider Olin to be fairly valued and feel comfortable discussing some of the qualitative aspects of the company and its management.

Be sure to check out previous ModernGraham valuations of Olin Corporation for better perspective.

This article was written by

Benjamin Clark profile picture
5.71K Followers
Benjamin is one of TipRank's top bloggers.  He is the founder of ModernGraham.com, a value investing website devoted to the study and modernization of the teachings of Benjamin Graham.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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