Zacks Investment Research downgraded Olin Corporation OLN to a Zacks Rank #5 (Strong Sell) on Oct 13, 2015. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of underperforming the broader market.
Why the Downgrade?
Market sentiments for Olin Corporation have been weak, with its share price down 21.4% year to date. The company recently completed the merger of the chlorine products businesses of The Dow Chemical Company (DOW). The merger, though expected to yield benefits over the long run, will adversely impact the company’s margins in the near future.
To fund the transaction, Olin Corporation has raised funds through debt issuance, increasing its financial obligations. Also, the company anticipates incurring roughly $17 million of pre-tax acquisition-related costs and $8 million of financing expense in the third quarter of 2015.
For third-quarter 2015, Olin Corporation predicts lower year-over-year earnings for the Chlor Alkali products segment. Also, for 2015, the company has lowered its forecast for earnings before interest, tax, depreciation and amortization ("EBITDA") to a range of $330−$360 million from the prior projection of $340−$380 million.
Disappointing outlook has weakened investors’ confidence in Olin Corporation. Over the last 60 days, the Zacks Consensus Estimate for the stock has decreased 3.2% to $1.21 per share for 2015 and 15.4% to $1.81 per share for 2016. Also, earnings estimate for the third quarter dropped 10.8% to 33 cents per share. Moreover, the company has an Earnings ESP of -6.06% for the third quarter and -13.81% for 2016.
Stocks to Consider
Presently, Olin Corporation has a market capitalization of $2.9 billion. Better-ranked stocks in the chemical industry include Koppers Holdings Inc. KOP, Arkema S.A. ARKAY and Celanese Corporation CE. While Koppers Holdings sports a Zacks Rank #1 (Strong Buy), both Arkema and Celanese Corporation carry a Zacks Rank #2 (Buy).
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