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Why You Should Add Olin (OLN) Stock to Your Portfolio Now

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Olin Corporation’s (OLN - Free Report) shares have shot up around 55% over the past three months. It is gaining from the Lake City U.S. Army contract, productivity actions and investment in the Information Technology (IT) project. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.

Olin has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities for investors.

Let’s take a look into the factors that make this chemical maker a compelling choice for investors right now.

An Outperformer

Shares of Olin have surged 205.6% over the past six months against the 28.5% rise of its industry. It has also outperformed the S&P 500’s roughly 18% rise over the same period.

 

 

Estimates Going Up

Over the past two months, the Zacks Consensus Estimate for Olin for 2021 has increased around 396.9%. The favorable estimate revisions instill investor confidence in the stock.

Solid Growth Prospects

The Zacks Consensus Estimate for earnings for the current year for Olin is currently pegged at $3.23, reflecting an expected year-over-year growth of 339.3%. Moreover, earnings are expected to register a 382.9% growth in first-quarter 2021.

Valuation Looks Attractive

Olin’s shares are currently trading at a level that is lower than the industry average, suggesting that the stock still has upside potential.

Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value chemical stocks, Olin is currently trading at trailing 12-month EV/EBITDA multiple of 7.59, cheaper compared with the industry average of 13.14.

Upbeat Prospects

Olin recently raised its outlook for the first quarter of 2021. It now projects first-quarter adjusted EBITDA in the range of $475-$500 million, higher than $400-$425 million expected earlier. The revised projection includes a net one-time benefit associated with Olin's customary financial hedges and contracts, maintained to provide protection from rapid and dramatic changes in energy costs.  The outlook for the first quarter has further upside potential related to the final settlement of these one-time items linked with the winter storm Uri.

The company, in its fourth-quarter earnings call, also said that it expects price hikes for chlorine, epichlorohydrin, epoxy resins, bleach, ethylene dichloride and chlorinated organics to favorably contribute to its Chemicals businesses in the first quarter. Olin also sees its productivity actions to positively contribute to first-quarter results.

The company also expects higher performance for its Winchester business in 2021. The Winchester segment is expected to benefit from the Lake City U.S. Army ammunition contract. The multi-year contract is expected to significantly boost annual profitability of the unit. The company expects the contract to increase Winchester's annual revenues by $450-$550 million.  

Olin is also expected to gain from cost and other benefits from its investment in the IT project. The project, which involves implementation of necessary IT infrastructure, is expected to maximize cost effectiveness, efficiency and control over its global chemical operations by standardizing business processes.

The company also remains committed to improve its cost structure and efficiency and also drive productivity through a number of projects. It expects productivity measures to deliver $50-$100 million of net savings in 2021.

 

Olin Corporation Price and Consensus

 

Olin Corporation Price and Consensus

Olin Corporation price-consensus-chart | Olin Corporation Quote

 

Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Nucor Corporation (NUE - Free Report) , Fortescue Metals Group Limited (FSUGY - Free Report) and United States Steel Corporation (X - Free Report) .

Nucor has a projected earnings growth rate of 135.3% for the current year. The company’s shares have surged around 124% in a year. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortescue has a projected earnings growth rate of 107.8% for the current fiscal. The company’s shares have shot up around 155% in a year. It currently sports a Zacks Rank #1.

U.S. Steel has an expected earnings growth rate of 201.1% for the current year. The company’s shares have surged around 301% in the past year. It currently carries a Zacks Rank #2.

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