Chemours' Reduced Litigation Risk Removes Susquehanna's Objections To The Stock

Susquehanna upgraded Chemours Co CC to Positive from Neutral on reduced litigation risk, improved TiO2 prices and potential upside to 2017 EBITDA outlook.

On Monday, E I Du Pont De Nemours And Co DD and Chemours announced a global settlement of the multi-district PFOA litigation between DuPont and the plaintiffs. Under the settlement, subject to approval by the plaintiffs, DuPont and Chemours will each pay $335.35 million.

Susquehanna Weighs In

Analyst Don Carson noted that Chemours's portion of the cost is nearly 40 percent lower than Susquehanna’s base-case $550 million estimate.

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In addition, the average TiO2 pricing in 2016 increased for the first time since 2012. Carson expects $0.05/lb of Chemours's $0.06/lb first quarter price increase to be realized in February due to the unplanned outage at Huntsman's facility in Europe and strong order books.

“Chemours is well positioned to benefit from the cyclical recovery of TiO2 pricing that is still in early innings as well as faster adoption of Opteon refrigerant due to EU regulatory requirements and voluntary U.S. adoption,” Carson wrote in a note.

Notably, faster Opteon adoption would increase Fluoro products earnings, while Chemours’ margins should benefit from an incremental $150 million of cost savings slated for 2017.

Stock Movement, Now And Ahead

However, despite the earnings beat, shares fell more than 2 percent on Thursday due to 2017 EBITDA guidance of greater than $1 billion that was more modest than investors expected.

But, Carson believes the pullback creates a buying opportunity as he sees significant upside to the EBITDA forecast given greater than expected momentum in TiO2 prices.

In fact, Carson raised his 2017 EBITDA estimate to $1.250 billion and EPS view to $3.00 (prior $960 million and $1.90). The analyst also raised the price target on the shares to $40 from $26.

At last check, shares of Chemours rose 4.23 percent to $33.25.

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