New Investments In High-Purity Resins And Opteon Refrigerants Will Improve Future Operational Efficiency

Key Takeaways

• Chemours aims to boost operational efficiency and net margins through cost savings and strategic expansion, including a significant increase in production capacity.
  
• Investments in high-growth areas and products like Opteon refrigerants and high-purity resins are expected to drive revenue growth and strengthen market position.
  
• Chemours faces financial challenges from losses, pricing pressures, and litigation, impacting earnings and delaying strategic investments amid softer market conditions.

Catalysts

Provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America.

• Chemours' refreshed corporate strategy Pathway to Thrive aims to achieve over $250 million in cost savings by 2027, driving improvements in operational efficiency and boosting net margins through cost reduction efforts that are planned to be realized significantly by the end of 2025.
  
• The company expects to capitalize on double-digit growth in Opteon refrigerants due to regulatory transitions under the AIM Act, which will enhance revenue growth and market share as Freon increasingly becomes a smaller part of their portfolio.
  
• Chemours is strategically expanding its capacity with a 40% increase at the Corpus Christi site expected in early 2025, aimed at supporting the U.S. OEM regulatory transition and driving future revenue growth through increased production in high-demand areas.
  
• With the new Teflon PFA line for semiconductor manufacturing ramping up production, Chemours anticipates strengthening its Performance Solutions portfolio, contributing to future revenue growth driven by high-purity resins.
  
• The company is focusing on investments in high-growth areas like data center cooling and semiconductor fabrication, with expected funding from operating cash flow, which will be critical for achieving revenue targets and maintaining a more growth-oriented portfolio.

Chemours Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chemours's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.3% today to 12.9% in 3 years time.
• Analysts expect earnings to reach $851.0 million (and earnings per share of $5.63) by about January 2028, up from $76.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.5x on those 2028 earnings, down from 36.9x today. This future PE is lower than the current PE for the US Chemicals industry at 22.6x.
• Analysts expect the number of shares outstanding to grow by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.44%, as per the Simply Wall St company report.

Chemours Future Earnings Per Share Growth

Risks

• Chemours experienced a net loss of $27 million in the third quarter, partly due to a $56 million noncash impairment charge, which could impact its future earnings and investor confidence.
  
• There's a notable decrease in EBITDA for some segments, like TSS, where adjusted EBITDA fell 13% year-over-year, indicating pricing pressures and rising costs that could affect net margins.
  
• The company is facing challenges in its Advanced Materials segment, with adjusted EBITDA decreasing 43% due to pricing issues and softer market conditions, indicating potential revenue constraints.
  
• Chemours' strategy involves delaying certain strategic investments, such as those in the hydrogen venture, due to reduced near-term demand, which could impact potential future revenue streams.
  
• Legacy PFAS liabilities and ongoing litigation pose financial risks, which could burden Chemours with costs affecting its net income and profitability.

Valuation

• The analysts have a consensus price target of $23.8 for Chemours based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $34.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.6 billion, earnings will come to $851.0 million, and it would be trading on a PE ratio of 5.5x, assuming you use a discount rate of 9.4%.
• Given the current share price of $18.76, the analyst's price target of $23.8 is 21.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.