BUSINESS
The Chemours Company provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. It operates through four segments: Titanium Technologies, Thermal & Specialized Solutions, Advanced Performance Materials, and Chemical Solutions. The Titanium Technologies segment provides TiO2 pigment under the Ti-Pure and BaiMax brands for delivering whiteness, brightness, opacity, and protection in various of applications, such as architectural and industrial coatings, flexible and rigid plastic packaging, polyvinylchloride, laminate papers used for furniture and building materials, coated paper, and coated paperboard used for packaging. The Thermal & Specialized Solutions segment offers of refrigerants, thermal management solutions, propellants, foam blowing agents, and specialty solvents.
INVESTMENT RATING
CC’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
Chemours has a current Value Trend Rating of C (Low Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing contradictory signals. Chemours has a slightly positive Appreciation Score of 70 but a poor Power Rating of 25, and the Low Neutral Value Trend Rating results.
Chemours’ stock is selling well below targeted value. The current stock price of $26.64 compares to targeted value 12 months forward of $63.
Chemours’ moderately high appreciation potential results in an appreciation score of 70 (only 30% of the universe has greater appreciation potential.)
Chemours has a Power Rating of 25. (CC’s poor Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 25% of companies in the universe.)
Factors contributing to this poor Power Rating include: CC’s earnings estimates have fallen very significantly in recent months; and recent price action has been slightly unfavorable. An offsetting factor is the Industrial Organic Chemicals comparison group is currently in a modestly favorable position.
INVESTMENT PROFILE
Chemours’ financial strength is above average. Financial strength rating is 65.
Relative to the S&P 500 Composite, Chemours Co has moderate Growth characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that CC is extremely high risk. Relative weaknesses include: high stock price volatility, high financial leverage, and high earnings variability. Chemours’ valuation is low: high dividend yield, low P/E ratio, and moderate price/book ratio. CC has unusually low market capitalization.
CURRENT SIGNALS
Chemours’ current operations are eroding. Return on equity is falling, reflecting: and falling asset utilization.
Chemours’ current technical position is very strong. The stock price is in a 1.9 month up move. The stock has appreciated 34.8% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Recent notable negative changes in investment behavior have affected The Chemours Co (NYSE: CC): the stock fell on very heavy volume.
Recent marginal positive changes in fundamentals have benefitted The Chemours Co (NYSE: CC): significant quarterly earnings acceleration occurred.
In light of this we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
The Chemours Co (NYSE: CC) stock closed at $26.64 on 2/14/24 after a major decline of -12.6%. Moreover, exceptionally high trading volume at 396% of normal accompanied the decline. The stock has declined -11.3% during the last week and has been weak relative to the market over the last nine months.
CASH FLOW
In 2022, Chemours experienced a significant decline in cash of -$349 million (-24%). Sources of cash were lower than uses. Cash generated from 2022 EBITDA totaled +$1,079 million. Non-operating sources contributed +$123 million (+11% of EBITDA). Cash taxes consumed -$151 million (-14% of EBITDA). Re-investment in the business amounted to -$553 million (-51% of EBITDA). On a net basis, debt investors pulled out -$295 million (-27% of EBITDA) while equity investors withdrew -$552 million (-51% of EBITDA).
Chemours’ Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Chemours Peer Group. In most years, Chemours was in the second quartile and lower quartile. Currently, Chemours is substantially above median at +11% of EBITDA (+$123 million).
Chemours’ Cash Taxes, %EBITDA has exhibited a very small overall uptrend over the period. This improvement was accompanied by a similar trend for the Chemours Peer Group. In most years, Chemours was in the top quartile and second quartile. Currently, Chemours is at median at -14% of EBITDA (-$151 million).
Chemours’ Business Re-investment, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Chemours Peer Group. In most years, Chemours was in the top quartile and lower quartile. Currently, Chemours is slightly above median at -51% of EBITDA (-$553 million).
Chemours’ Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Chemours Peer Group. In most years, Chemours was in the top quartile and lower quartile. Currently, Chemours is substantially below median at -27% of EBITDA (-$295 million).
Chemours’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Chemours Peer Group. (Since 2020 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Chemours was in the top quartile. Currently, Chemours is below median at -51% of EBITDA (-$552 million).
Chemours’ Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Chemours Peer Group. In most years, Chemours was in the top quartile and third quartile. Currently, Chemours is lower quartile at -32% of EBITDA (-$349 million).
Chemours’ Cash, %Revenue has exhibited a minor overall uptrend over the period. This improvement was accompanied by stability for the Chemours Peer Group. In most years, Chemours was in the top quartile and lower quartile. Currently, Chemours is upper quartile at +16%.
PROFITABILITY
Chemours’ return on equity has eroded very significantly since 2013. The current level is -40.9% versus the high of 12.9% and the low of -71.4%.
This very significant erosion was due to very strong negative trend in pretax operating return supported by strong negative trend in non-operating factors.
The productivity of Chemours’ assets declined over the full period 2013-2023: asset turnover has suffered a strong overall downtrend.
Chemours’ pretax margin experienced a volatile overall downtrend over the period 2013-2023.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
Chemours’ return on equity is lower quartile (-40.9%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is lower quartile (-3.9%) reflecting asset turnover that is at the lower quartile (0.76X) and lower quartile pretax margin (-5.1%).
Tax “keep” rate (income tax management) is at the upper quartile (101.0%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is upper quartile (10.53X).
GROWTH RATES
There are no significant differences between Chemours’ longer term growth and growth in recent years.
Chemours’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 1.6% per year.
Total asset growth has been 5.3% per year.
Annual E.P.S. growth has been 12.5% per year.
Equity growth has been 0.4% per year.
No consensus growth rate forecast is available for Chemours.
Relative to the Chemours Peer Group, Chemours’ historical growth measures are erratic. E.P.S. growth (12.5%) has been at median. Total asset growth (5.3%) has been at median. Revenue growth (1.6%) has been slightly below median. Equity growth (0.4%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Chemours’ stock price performance has been variable and superior. Between September, 2015 and February, 2024, Chemours’ stock price rose +312%; relative to the market, this was a +58% gain. Significant price moves during the period: 1) March, 2020 – May, 2021: +305%; 2) December, 2019 – March, 2020: -51%; 3) February, 2019 – August, 2019: -63%; 4) October, 2017 – December, 2018: -50%; and 5) January, 2016 – October, 2017: +1337%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -14.3% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -14.3% is lower quartile relative to Chemours Co (The) Peer Group.
Current 5-year total return performance of 0.7% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of 0.7% relative to S&P 500 Composite, Chemours’ total return performance is at the lower quartile relative to Chemours Co (The) Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CC’s overall valuation is low. Price/equity ratio is above median. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Ratio of enterprise value/assets is near the lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable.
Relative to Chemours Peer Group, CC’s overall valuation is quite low. Price/equity ratio is at median. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable.
Chemours has a major value gap compared to the median. For CC to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.36X to 2.95X. If CC’s ratio of enterprise value/revenue were to rise to 2.95X, its stock price would be higher by $64 to $91.
For CC to achieve upper quartile valuation relative to the Chemours Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.36X to 3.78X. If CC’s ratio of enterprise value/revenue were to rise to 3.78X, its stock price would increase by $98 from the current level of $27.
VALUE TARGETS
CC’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
Chemours’ current Price Target of $61 represents a +128% change from the current price of $26.64.
This moderately high appreciation potential results in an appreciation score of 70 (only 30% of the universe has greater appreciation potential.)
Notwithstanding this moderately high Appreciation Score of 70, the low Power Rating of 25 results in an Value Trend Rating of C.
Chemours’ current Price Target is $61 (-38% from the 2022 Target of $97 but +128% from the 02/14/24 price of $26.64). This dramatic fall in the Target is the result of a +3% increase in the equity base and a -39% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a very large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very slight positive impact.
PTR’s return on equity forecast is 47.3% — significantly below our recent forecasts. Forecasted return on equity exhibited a modest, erratic increase between 2014 and 2022. The current forecast is significantly below the 2016 peak of 198%.
PTR’s growth forecast is 7.0% — above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2018 low of 0%.
PTR’s cost of equity forecast is 13.9% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2014 low of 5.1%.
At Chemours’ current price of $26.64, investors are placing a negative value of $-1 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 11.0% per year, and a return on equity of 60.7% versus a cost of equity of 14.2%.
PTR’s 2024 Price Target of $61 is based on these forecasts and reflects an estimated value of existing assets of $33 and a value of future investments of $27.
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