Outlining the investment case for Chemours Co CC, JPMorgan said the company has a proprietary set of very profitable newer generation refrigerants, with patent lives extending to 2022, with excellent growth potential.
Riding On Regulatory Changes
Analysts Jeffrey Zekauskas, Youyou Yan and Silke Kueck noted the new refrigerants are now growing quickly because of demand from the auto OEM market in the U.S. and Europe, driven by regulatory changes to incentivize the use of technology that minimizes global warming.
"We note that the auto after-market is larger than the OEM market, and we expect the technology to make its way into the after-market over time," the analysts said.
Opportunities Galore
JPMorgan noted that the new class of refrigerants is currently being produced only by Chemours and Honeywell International Inc. HON. European and U.S. regulations are also beginning to lead to a movement away from refrigerants for industrial and supermarket use with high global warming potential in favor of low-GWP solutions, the firm added.
The firm sees these are opportunities for Chemours and its Opteon set of products, whose use also tends to lead to reduced power consumption by refrigeration units. According to the firm, the stationary refrigeration markets are multiples of the size of the mobile air conditioning markets.
Multiples Likely To Expand
While noting that Chemours is being valued similarly to Eastman Chemical Company EMN or Celanese Corporation CE, the firm said there is room for Chemours' multiple to expand because of its longer-term growth opportunities.
"There is also the potential for a rapid adoption of its new products to make a sharp and positive difference to its earnings profile," the firm said.
"Chemours is tripling its Opteon capacity by the end of 2018."
Upgrading Rating
JPMorgan upgraded shares of Chemours to Overweight from Neutral and raised its price target to $50 from $39.
At the time of writing, Chemours shares were rallying 3.15 percent at $43.20.
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