The Chemours Company (NYSE:CC), the U.S. performance chemicals firm, is currently trading at EV/EBITDA of 6.1x with Return on Total Capital of 9.4%. The stock looks undervalued compared to Materials sector (a 21.2% discount to average EV/EBITDA), but, at the same time, its margins dipped this year, while LTM total revenue and EBITDA also headed lower to 2017 levels, which denote that the company has to tackle strong headwinds that mostly stem from the end-markets titania, fluoropolymers, and fluorochemicals demand and grapple with pressure on the top line and margins.
So, due to the cyclical downturn, CC is now a value stock, which, as the global economy will gain solid momentum again, could edge in the 10x+ EV/EBITDA region, where it had traded in 2016-2017, as the market will likely appreciate revitalized earnings and revenue growth. The critical question is how long the end-market demand will remain weak and if fiscal stimuli like rate cuts will bear fruit or not; so, most likely, Chemours has not bottomed yet. Thus, the stock is not a top pick for investors with a horizon below 3 years.
Chemours also faced public scrutiny as the "forever chemicals" contamination (e.g., PFAS like PFOS and PFOA) is still a substantial issue and is worthy of concern; yet, the company clarified that it "has never made or sold PFOA as a commercial product, or used PFOA as a processing aid," (see p. 19 of the presentation), and I will not delve deeper in this issue as there is ongoing litigation (see p. 21 of the Form 10-Q for details regarding asbestos, benzene, PFOA, and other lawsuits.)
Share performance YTD
Share performance YTD has not been particularly inspiring given the volatility in the markets caused by the trade war and rate cuts, lowered 2019 guidance after disappointing Q2 2019
