UBS Offers A Chemicals Pair Trade: Olin Upgraded To Neutral, Axiall Downgraded Sell

Loading...
Loading...
John Roberts of UBS commented in a note on Wednesday that petrochemical prices will "adjust for lower oil prices" while pricing for vinyls is "loosely" linked to oil due to ethylene being the largest raw material. With that said, Roberts upgraded shares of
Olin CorporationOLN
to Neutral from Sell while shares of
Axiall CorpAXLL
were downgraded to Sell from Neutral. Roberts explained he prefers Olin over Axiall on a relative basis since: 1) Olin offers a four percent dividend yield while Axiall doesn't offer a dividend, 2) Olin should close its Reverse Morris Trust in early October which will mark the start to "significant" cost savings, 3) Axiall is undertaking a $100 million cost restructuring program and strategically reviewing options for its Building Products and Aromatics segments. Roberts also noted that Axiall is still the only major vinyls provider that's not back integrated to ehylne. Chlor-alkali + vinyls represent 85 percent of the company's EBITDA (versus Olin's 60 percent) which is unfavorable for the company given the "lackluster and uneven" demand for vinyls and growing global macro uncertainty. The analyst further suggested that a recovery in the near and medium term is not expected. Roberts also made the following estimate changes: For Olin the company is now expected to earn $1.71 per share in fiscal 2016 and $2.15 per share the following year. The analyst previously estimated earnings of $1.75 and $2.15 per share, respectively. Axiall's 2016 and 2017 earnings per share estimates were lowered to $1.45 and $1.80 from $1.80 and $3.25, respectively.
Loading...
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorAnalyst RatingsAxialchemicalsCommoditiesJohn RobertsOilOlinUBSVinyls
We simplify the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...