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Olin Corp. Leveraged To Cyclical Improvements And A Major Strategic Shift

Mar. 01, 2021 2:50 PM ETOlin Corporation (OLN)16 Comments
Stephen Simpson profile picture
Stephen Simpson


  • Olin saw a significant margin beat in the fourth quarter and future margin improvements look likely as new management prioritizes value and margins over volumes.
  • A focus on higher-margin production should lead to further capacity reductions and lower (or at least more efficient) capex investments in the future.
  • Internal margin-improvement efforts should be complemented by healthy end-market demand in 2021, including strong resi construction and improving auto and industrial markets.
  • Olin is fairly valued based on older valuation ranges, but I believe improving margins support a higher forward multiple and upside into the mid-$30's.

I certainly can’t say that Olin (NYSE:OLN) has been left behind over the last year or so. Between a recovering economy and the hiring of a new CEO in 2020, Olin shares have risen almost 170% since the July 15, 2020 announcement that Scott Sutton would become the company’s new CEO, outpacing most of the company’s peers and comps (except Hexion (OTCPK:HXOH)), including Dow (DOW) and Westlake (WLK), by a healthy margin.

Although Olin is already trading at its highest levels in three years, I think the combination of cyclical demand recovery and a meaningfully different operating philosophy under the new CEO can drive further upside into the mid-$30’s.

A New Set Of Priorities

Scott Sutton, who was previously a senior executive at Celanese (CE), has laid a new course for Olin that is philosophically similar to the plan that was used to significant positive effect at Celanese – focus on the profitability of the business over the size of the business.

For quite a long time Olin focused on its leading share in the chlor-alkali market and prioritized volume for volume’s sake, including overproducing low-margin epoxy products because it facilitated greater chlor-alkali production volumes. Unfortunately, that prioritization of volumes led to weaker margins and weaker asset utilization with a burdensome asset base.

Now Olin is focusing on margins, with Sutton explicitly stating that the company wants to be “on the weak side” of ECU. An ECU, or electrochemical unit, refers to the fixed ratio of chlorine (1.0 ton) to caustic soda (1.1 tons) and hydrogen (0.03 tons) from simultaneous co-production of these products from salt electrolysis. What that means today is that with chlorine being on the strong side of the ECU price/supply-demand curve, Olin is supplying lower volumes of caustic soda.

Olin is also changing how it pursues

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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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