Argus: Chemours Might Be A Buy If Prices, Inventory Improve

• The share price of Chemours Co. CC has declined 54.77 percent over the last three months.
• Argus’ Bill Selesky has initiated coverage of Chemours with a Hold rating.
• Selesky expects the company to face near-term earnings pressure, driven by the lower pricing for several specialty chemicals, which in turn is due to weak demand, particularly from China.

Chemours was spun off from DuPont Fabros Technology, Inc. DFT in July 2015, and Selesky believes that the company has “significant competitive advantages,” given its “large size, low manufacturing costs, vertically integrated structure, and broad geographic reach.”

However, apart from the earnings pressure, Selesky also expects Chemours’ pricing and earnings to be adversely impacted by the high chemical inventories existing at several of its customers.

For 2Q15, the company has reported net loss of $18 million or $0.10 per share, as compared to net profit of $116 million or $0.64 per share posted for 2Q14. According to the Argus report, “The swing to a net loss reflected an 11% pricing decline for titanium dioxide, a $48 million negative currency impact, and higher-than-expected maintenance costs.”

On the other hand, administrative and corporate costs declined, as compared to 2Q14. There were sales declines in most of its businesses, including Titanium Technologies, Fluoroproducts and Chemical Solutions.

For 2H15, the management has guided to growth in adjusted EBITDA to $412 million, as compared to $272 million in 1H15, while guiding to full year adjusted EBITDA increase by $500 million during 2015-2017.

This growth is expected to be driven by “additional structural cost reductions, growth in the Opteon refrigerants business, and the absence of extended maintenance shutdowns that lowered earnings last year,” the report stated.