The Chemours Company (NYSE: CC), a specialty chemical producer spun off from DuPont, is HOLD. In our view, these valuations are not particularly attractive given the company’s challenging near-term outlook and weak balance sheet.
The beta on CC is 2.3.
CC is due to report 3Q EPS early next month. The consensus is calling for EPS of $0.31, down from $0.59 a year ago. Revenue is expected to fall 14% to $1.2 billion. Estimates have been revised downward in the past 90 days.
The company recently posted 2Q results that topped estimates. Second-quarter adjusted net income fell to $0.18 per diluted share from $0.72 per share a year earlier, but topped the consensus estimate of $0.10. Net sales fell 22% year-over-year to $1.1 billion.
EARNINGS & GROWTH ANALYSIS
In the Titanium Technologies segment, second-quarter sales fell 14%, and segment adjusted EBITDA dropped 26%. Volumes fell 9% year-over-year, while average global selling prices declined by 5%.
Despite higher gold prices, the segment also faces uncertainty due to mine closures.
FINANCIAL STRENGTH & DIVIDEND
We rate the company’s financial strength as Medium-Low, the second-lowest rank on our five-point scale. The company’s debt is rated Ba3/negative, down from Ba2/stable by Moody’s.
Long-term debt was $4.3 billion at the end of 2Q20 and accounted for 86% of total capitalization. Cash from operating activities covered interest expense last quarter by a factor of 3-times. Cash and cash equivalents were $1.03 billion. Cash provided by operating activities was $155 million in 2Q20, versus a negative $38 million in the prior-year quarter. Free cash flow was an outflow of $50 million, versus an inflow of $117 million a year earlier.
The company pays a dividend. In September 2018, the company raised its quarterly dividend by 47% to $0.25 per share, or $1.00 annually, for a yield of about 8.4%. Our dividend estimates are $1.00 for both 2020 and 2021.
The company has a share buyback program.
MANAGEMENT & RISKS
Chemours CEO Mark Vergnano, formerly an executive vice president at DuPont, has more than three decades of chemical industry experience. He was named group vice president of Safety & Protection in June 2006 and executive vice president in October 2009.
Investors in the CC shares face risks.
Illegal imports of stationary refrigerants into the EU pose a risk for the company’s Fluoroproducts segment.
CC shares have traded between $5 and $58 since the July 2015 spinoff from DuPont.
The price/sales multiple of 0.74 is above the midpoint of the historical range of 0.3-0.8. In our view, these valuations are not particularly attractive given the company’s challenging near-term outlook and weak balance sheet. We may look to move the shares to the BUY list if they fall back toward technical support near $15.