Published on July 8, 2015 at 1:29 pm by Hedge Funds,Newsin
Chemours Company (NYSE:CC) is not having a great start to its life as an independent, publicly-traded company. Shares of the company, which was once the performance chemicals arm of E I Du Pont De Nemours And Co (NYSE:DD) fell to as low as $13.20 per share earlier today, or 11.94% lower than its closing price of $14.99 per share yesterday. The slide of the stock appears to be due to a generally pessimistic outlook on the company and its niche industry. JP Morgan was among the first firms to reveal its negative stance on the company. The firm said before the spin-off was completed that its regards the transaction as dilutive to parent company E I Du Pont De Nemours And Co (NYSE:DD), which it said will lose about $978 million in operating income, or $900 million after adjusting for an estimated $75 million in residual costs. JP Morgan has an ‘Underweight’ rating on Chemours Company (NYSE:CC). Credit Suisse is also pessimistic about Chemours. The financial firm said that Chemours could possibly be hounded by legal problems it took with it from DuPont. There is a possibility that environmental fines of $295 million will double, Credit Suisse said. Early on, we have also predicted here at Insider Monkey that Chemours’ chances of matching the success of fellow DuPont spin-off Axalta Coating Systems Ltd (NYSE:AXTA) are not at all likely.
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Not everyone agrees with this, however, as other analysts are not recommending selling shares of the former DuPont division. UBS initiated coverage on Chemours Company (NYSE:CC) on Monday with a ‘Neutral’ rating and a price target of $16.00. Nonetheless, the ‘Neutral’ rating comes with a caveat. UBS said that the initial $100 million per quarter dividend of the company will likely be slashed to a “more sustainable” $50 million per quarter level. The firm, according to UBS’s analysis, will likely not be able to generate sufficient cash flow to fund the announced dividend.
Barclays, on the other hand, is not putting too much weight into whether or not Chemours Company (NYSE:CC) will even pay a dividend. With or without a dividend, Barclays believes the performance chemicals firm will gain 50%. Barclays initiated coverage on Monday with a rating of ‘Overweight’ on Chemours, and a price target of $24.00 per share. Explaining the bullish stand, analyst Duffy Fischer said that there are “few quality assets” in the industry Chemours is in “that trade meaningfully below asset value”. This makes Chemours, he wrote in a note, “a unique opportunity.” In his note, he added that Barclays values Chemours’ titanium dioxide business at $38 per share, its Fluoro products businesses at $17 per share and its Chemical Solutions business at $4 per share. Adjusting for net debt of $20 per share, corporate expenses of $5 per share and environmental expenses of $5 per share, the equity to owners is at $29 per share, Fischer wrote.
If Fischer is to be believed, large shareholders of E I Du Pont De Nemours And Co (NYSE:DD) will benefit, as they got one Chemours Company (NYSE:CC) share per each batch of five DuPont shares they owned as of June 23. These large shareholders include Nelson Peltz‘s Trian Partners which had the biggest position in E I Du Pont De Nemours And Co (NYSE:DD) at the end of the first quarter (and fought a losing proxy battle against it this year, during which he criticized Chemours’ planned governance as archaic, “1970’s-style board governance”), comprised of 24.56 million shares worth close to $1.76 billion, or 20.5% of its total 13F portfolio. On Trian Partners’ heels is Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $98.1 million position made up of 1.37 million shares; the fund has 0.2% of its 13F portfolio invested in the stock. Jonathon Jacobson‘s Highfields Capital Management also owned about 1.31 million shares of DuPont at the end of March valued at about $93.61 million.
Since shareholders of DuPont got one Chemours Company (NYSE:CC) share for every five E I Du Pont De Nemours And Co (NYSE:DD) they owned, Trian Partners, Adage Capital Management and Highfields Capital Management owned approximately 4.91 million shares, 274,560 shares and 261,965 shares of Chemours respectively when it started trading. These hedge funds appear to be losing money as Chemours continues its slide, if they haven’t already reduced their positions.
The continued disappointing performance of Chemours Company (NYSE:CC) as well as the negativity of most industry observers weighing in on the stock, lead us to conclude that it is not a safe bet at the moment. One may believe Barclays, which says that the firm’s deep value for best in class assets is rare and that the convergence of the spinoff, weakening fundamentals, and dividend issues offer an attractive entry point, but most other analyst firms are showing more concern than confidence in the performance chemicals company and we tend to agree with them.