Searching For Value: Could The New Olin Be Through Its Cycle Low Multiples Already?

Oct. 31, 2018 5:00 AM ETOlin Corporation (OLN)DD, WLK16 Comments


  • Construction related stocks have been trading down all year, and Olin has been dragged down with them.
  • Olin Corporation made a transformational acquisition in 2015 purchasing Dow Chemical's Chlor-Alkali assets. Making Olin the largest domestic producer.
  • The acquisition also added downstream exposure, and reduced Olin's total exposure to merchant Chlorine/Caustic Soda pricing in terms of EBITDA.
  • Will the New Olin produce shallower troughs In EBITDA through the cycle going forward?
  • New Olin might warrant higher multiples due to lower volatility in returns. Current valuation might suggest the New Olin is already trading through the bottom of its appropriate valuation range.


This will sound like a strange introduction to a Buy recommendation, but the company in question: Olin Corporation (NYSE:OLN), is not the greatest company in the world. It's a decent to good business, and historically it is very cyclical. I don't think this is a Buy-and-hold forever type of stock. However, it made a transformational deal with the now DowDupont Inc. (DWDP), back in 2015, that made OLN into the largest domestic producer of Chlor-Alkali products in the industry. It also expanded its downstream products in the process, which reduced its total exposure to merchant pricing on the output of its primary products: Chlorine and Caustic Soda. The million dollar question we'd like an answer to: is does this mean that the new OLN's EBITDA and earnings will be less volatile, impacted less through the business cycle, than they were in the past? Spoiler alert, I don't know with certainty. However, there are reasons to suspect this may be the case, and clearly management believes so as well. If that's an accurate view, then there's a case to be made that OLN's stock has already sunk too far, and going forward it's valuation floor should be higher than what the stock has historically done. Essentially, this is an expensive market, and OLN's stock might make for the rare compelling case on a true valuation basis.

THE OLIN CORPORATION has donated $250,000 to the American Red Cross to aid in Hurricane Harvey relief efforts. Pictured is Olin’s Freeport bleach plant. Source

Company Background:

OLN is a commodity chemicals company. There is no case to be made here that it should warrant a specialty chemicals multiple etc... In fact, the new iteration is essentially a reflection of Dow's desire to get a higher multiple and shed as much of its commodity exposure as possible. Having said that, its business is more complicated than one might expect. There are multiple products, with multiple end uses and different sources of customer demands. The important

ChartUS Existing Home Sales data by YCharts

ChartITB data by YCharts

ChartOLN EBITDA (Annual) data by YCharts

ChartOLN Normalized Diluted EPS (Annual) data by YCharts

ChartOLN Price to Book Value data by YCharts

ChartOLN PS Ratio (NYSE:TTM) data by YCharts

ChartOLN EV to EBITDA (TTM) data by YCharts

ChartOLN Price to Free Cash Flow (TTM) data by YCharts

ChartDWDP EV to EBITDA (TTM) data by YCharts
ChartDWDP EV to EBITDA (TTM) data by YCharts

ChartOLN Price to Book Value data by YCharts

ChartOLN PS Ratio (TTM) data by YCharts

This article was written by

My experience stems from the hedge fund industry beginning in the mid-90's, working as a Portfolio Manager, Domestic Equity Analyst and Trader. I was the Portfolio Manager of a domestic Long/Short Equity product with gross assets that peaked over 1 Billion dollars. I am a fundamental, bottoms up, value investor on long investments, and catalyst oriented short investor. I like to employ technical analysis as a balance to my fundamental work, and also as a risk management characteristic to my overall investment philosophy. I look to author articles concerning unconventional investments, and overlooked securities. I am also an investor and analyst in Cryptoassets.

Disclosure: I am/we are long OLN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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