Time To Buy Chemours, Jefferies Says

In a report published Monday, Jefferies analyst Laurence Alexander initiates coverage of

with a Buy rating and a price target of $24. "Chemours has a severe case of asterism: a market-leading position in a consolidating market; a chance to more than quadruple earnings in a cyclical upturn; management focused on cash returns; and a capex harvest cycle in 2017-2019," analyst Laurence Alexander wrote. While Chemours has a number of positives, lackluster summer trends in TiO2 and weakening LEIs could offer "a good entry point in Q3 for longer-term investors," with the stock likely to double in 4-5 years. On July 1, Chemours begins trading on a when-issued basis. Alexander expects 15-20 percent of the shares to exit index funds in July. "High leverage ratios, weak summer trends in TiO2 and uncertainty over the dividend will likely exacerbate volatility, particularly if there are any jolts to end-market demand. Replacement value & SOTP models will provide support in the low-teens." In the report Jefferies noted, "The Q3 earnings call should provide the first evidence that the current $80m restructuring program is flowing through to margins, as well as clarity on the dividend policy and environmental costs should widen the investor base into yearend. A ~60% dividend payout ratio, on a mid-cycle (5-year avg.) basis, could support a~ $1.20/share dividend--and $25 on a 5% yield--while still reaching ~3.6x net debt/EBITDA in 2017E and positive FCF in 2017E or 2018E." Following this, the focus could shift to EBITDA growth and consolidation.