Oppenheimer Comments On Olin Following Earnings

Olin's OLN 4Q10 displayed stronger than expected chlor-alkali pricing and operating leverage, recovering nicely from last quarter's kinks. Normalized EPS was $0.26 vs. $0.00-0.05 guidance, $0.23 above Oppenheimer's estimate. GAAP EPS was $0.02. Below-the-line items included puts and takes, but suffice it to say that core chlor-alkali earnings were 36% above estimate due to pricing, volume and margin. ECU netback was $514, up 11% sequentially and 21% yoy, 3% above model. This quells doubts about OLN's operating prowess and leverage to industry pricing. On current industry pricing and typical contract lags, OLN's pricing should rise at least another 6% in 1Q11 and 4% in 2Q11. Oppenheimer's '11E EPS was 29% above consensus, so it trims it by $0.12 to $1.53 vs. Street's $1.28, adjusting mainly for higher capex, D&A, and steeper interest expense related to the mercury and ammo upgrades announced December, but also weaker Winchester. Oppenheimer's '12E EPS of $2.37 includes 8% planned net capacity reduction in chlor-alkali. Oppenheimer remains comfortable with its $28/share target. Later-cycle caustic soda should enable substantial margin from current levels. Precise modeling of Chlor Alkali improvement off a trough is difficult, but it expects EPS of $4.54 by 2014 vs. '10's $0.93. OLN sports a 4.1% dividend, no net debt or F/X exposure and an overfunded pension. Oppenheimer has an Outperform rating on OLN OLN closed Monday at $19.47