We apply a ~6.75x EV/EBITDA multiple to our 2026E EBITDA of ~$834mm (subtracting net debt of ~$2.8bn) for a target price of $25. OLN's forward EV/EBITDA multiple has ranged between ~4x and 10x, with an average of ~7x over the past five years. We believe the lower cyclical average multiple is appropriate due to uncertainty in ECU fundamentals, a reset in Winchester earnings from commercial destocking and cost headwinds, and balance sheet pressure. We factor in estimates current dynamics in the chlor-alkali market and management's comments on Chlor Alkali Products & Vinyls (CAPV), Epoxy and Winchester potential for growth upside.

This stock is High Risk based on our quantitative model. We consider this classification appropriate for OLN supported by recent stock price volatility, elevated leverage, and uncertainty in execution of volume growth strategy for Chemicals businesses in the face of an ongoing global supply glut.

We see the following risks that could prevent the stock from achieving our target price:

Energy Costs: Low US natural gas prices are positive for North America chlorine derivative and caustic soda exports. The majority of chlor alkali and upstream epoxy product pricing is tied to indexes, which can lag raw materials by 1-3 months.


Supply-Demand Fundamentals: Supply and demand fluctuations could impact selling prices, particularly in the Chlor Alkali Products and Vinyls segment. Risk of global product demand weakness, excess manufacturing capacity and lower average selling prices, among others, in economic downturns have a negative impact on profitability. Although OLN’s strategic operating model plays an active role in mitigating pricing pressures in periods of elevated supply and low demand, pricing pressures continue to exist and could negatively impact operating results. OLN could reduce production of both chlorine and caustic soda in response to a customer demand imbalance. However, since chlorine cannot be stored in large quantities, OLN may not be able to respond to an imbalance in customer demand for these products quickly or efficiently.


Raw Material Sourcing: A significant portion of raw materials are sourced from a few key suppliers. OLN has entered into agreements with Dow for feedstocks and facility services ranging from several years to 20 years.


If the impact from any of these factors proves to be greater than we anticipate, the stock will likely have difficulty achieving our target price. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could materially outperform our target.