Regulatory Shifts Toward low-GWP Technology Will Increase Opteon Refrigerants Demand

Key Takeaways

• Pathway to Thrive and TT plans enhance efficiency and cost savings, potentially boosting net margins and earnings growth.
  
• Opteon and Teflon expansions align with regulatory shifts and high-growth markets, potentially increasing revenues.
  
• Regulatory risks, market challenges, and strategic repositioning may lead to revenue loss, margin pressure, and operational inefficiencies for Chemours.

Catalysts

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

• The Pathway to Thrive strategy aims to deliver incremental cost savings of greater than $250 million across the company by 2027, which could enhance net margins and overall earnings.
  
• A strong growth trajectory for Opteon Refrigerants is anticipated due to shifts toward low-GWP technology, driven by regulatory changes in the U.S. and EU, expected to boost revenue.
  
• The TT Transformation Plan has exceeded its target of $125 million in annual savings, showcasing operational efficiency that could improve net margins.
  
• Recent capacity expansions, such as the high-purity Teflon PFA line for semiconductors, are expected to better position Chemours within high-growth markets, potentially increasing revenues.
  
• Strategic management of corporate overhead and transformation plans are anticipated to further optimize business segments, supporting continued earnings growth.

Chemours Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chemours's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 7.6% in 3 years time.
• Analysts expect earnings to reach $494.0 million (and earnings per share of $3.18) by about March 2028, up from $86.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 23.4x today. This future PE is lower than the current PE for the US Chemicals industry at 22.1x.
• 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 11.08%, as per the Simply Wall St company report.

Chemours Future Earnings Per Share Growth

Risks

• The Chemours Company faces regulatory risks, particularly related to the ongoing U.S. AIM Act and EU F-gas transitions, which are impacting their refrigerant prices and could lead to revenue fluctuations if demand shifts unfavorably. The regulatory uncertainties might also contribute to margin pressures.
  
• Market conditions in economically sensitive end markets and weaker hydrogen market demand have negatively influenced the Advanced Performance Materials (APM) segment, leading to decreased sales and adjusted EBITDA. This trend could persist and impact net margins if market recovery is delayed.
  
• The persistence of low Freon Refrigerant prices, driven by high HFC inventory levels, continues to pressure the pricing and thus, earnings of their Thermal & Specialized Solutions (TSS) segment, indicating a potential risk to the revenue stream.
  
• Chemours expects increased costs related to the ramp-up of new Opteon capacity and unplanned outages, which could result in operational inefficiencies and weigh on its earnings and EBITDA margins in the short term.
  
• The exit from the Surface Protection Solutions business and the long-term hold on the Nafion expansion indicate strategic repositioning due to regulatory changes and market deselection, potentially leading to a near-term revenue loss and restructuring charges, adversely impacting cash flows and net income.

Valuation

• The analysts have a consensus price target of $22.2 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 $27.0, 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 $6.5 billion, earnings will come to $494.0 million, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 11.1%.
  
• Given the current share price of $13.45, the analyst price target of $22.2 is 39.4% 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.