Greenlight Capital - Chemours Co.

Summary

• CC makes titanium dioxide (TiO2) and refrigerants. Both businesses came under pressure in 2019.
• We believe CC's results are set to improve.
• Finally, we think the legal liability concerns are vastly overstated.

The following segment was excerpted from this fund letter.

Chemours (NYSE:CC) - Long

5.7x P/E on 2020 estimates

CC makes titanium dioxide (TiO2) and refrigerants. Both businesses came under pressure in 2019. TiO2 suffered from cyclical excess supply and customer destocking, and CC lost market share by demanding inflexible contract terms from customers. Refrigerants suffered from smuggled product into Europe, in response to rising prices as Europe phases out environmentally-damaging refrigerants. The company also has liability related to PFOA, a so-called forever chemical that DuPont (DD) (CC's former parent) used to manufacture Teflon. Recently, there was a feature film, "Dark Waters," which tells the story of pollution and various misdeeds at DuPont's Washington Works plant in West Virginia. Due to a combination of cyclically-challenged business conditions and concern over legal risk, CC shares have fallen approximately 70% from their late 2017 highs.

We believe CC's results are set to improve. The TiO2 cycle is turning more favorable as the destocking has run its course and CC is poised to retake lost share. Refrigerants should improve in 2021 as European fluorinated gas legislation mandates a further phase-out of older refrigerants, raising demand for the new-generation refrigerants where CC holds valuable intellectual property.

Finally, we think the legal liability concerns are vastly overstated. DuPont curtailed PFOA emissions in 2004 and has been remediating its sites (which are now part of CC) ever since.

Further, CC settled health claims related to the Washington Works plant in 2017. There is market concern that Congress may pass legislation or the EPA may pass rules to address forever chemicals in a way that creates substantial new liabilities for CC. However, we believe that most of the legitimate remaining concern is about a sister chemical called PFOS that is used in firefighting foam. While this is a real concern for the largest PFOS manufacturer, 3M (MMM), neither DuPont nor CC ever made or sold it (though they did sell a nontoxic ingredient that was used in firefighting foam). We don't believe CC has material liability for PFOS. However, every time there is a headline about regulating forever chemicals, the story invariably lumps PFOA with PFOS and CC gets dragged through the mud along with 3M.

Analysts currently expect CC to earn $3.20 and $3.99 per share in 2020 and 2021, respectively. If our view of the improving cycle plays out, we believe those estimates should be exceeded by a very large margin.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.