UPDATE: Oiln's (OLN) Q3 Seen at Bottom of Expected Range; Rating Cut to 'Underperform' at Longbow Research
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(Updated - September 7, 2016 1:08 PM EDT)
Longbow Research downgraded Oiln (NYSE: OLN) from Neutral to Underperform with a price target of $17. Analyst Dmitry Silversteyn thinks a lack of recovery in Epoxy and lower than anticipated peak utilization rates in chlor-alkalis will put 3Q16 performance at the bottom of management’s range, implying a miss vs. consensus. He also thinks with 4Q16 guidance will fall short of Street forecasts.
"We are downgrading OLN to UNDERPERFORM as we believe lower than expected industry utilization rates and declining YoY volumes will result in below-expectation performance in 3Q16 and a possible reduction in 4Q16 guidance that, combined with delayed realization of mid-cycle profitability, may drive a contraction in OLN's valuation multiples, leading to a lower stock price," said Silversteyn.
The analyst added, "While caustic and chlorine contract prices should increase as expected (by mid-single digits $/ton QoQ) in 3Q16, the July 2016 peak industry utilization rates topped out at a disappointing 87% vs. 90% a year ago and 93-95% levels needed to drive sustainable (as opposed to seasonal) price increases in chlorine, suggesting lower YoY utilization rates and thus volumes in 3Q16 vs. our previous expectations and management’s guidance."
Discussing epoxy margins, the analyst said, "A significant part of the profit recovery story for OLN is the improvement in Epoxy profitability levels that was expected to commence in 2H16, however, epoxy prices are declining rather than stabilizing QoQ and with raw material costs flat to up modestly sequentially, margins of the Epoxy division may remain near break-even levels in 2H16, putting management’s 2016 EBITDA guidance at risk."
Shares of Oiln closed at $21.75 yesterday.
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