Bear of the Day: Polypore (PPO) - Bear of the Day
November 12 2013 - 6:30AM
Zacks
Polypore International (PPO) recently reported its 6th
consecutive earnings miss as sales disappointed and profit margins
declined.
Analysts revised their estimates significantly
lower for both 2013 and 2014 after the Q3 miss, sending the stock
to a Zacks Rank #5 (Strong Sell).
Although shares have recently sold off, the stock
still does not look cheap at more than 30x forward earnings.
Investors should consider waiting for earnings momentum to turn
positive before establishing a position.
Polypore International is a high technology
filtration company that develops, manufactures and markets
specialized polymer-based microporous membranes used in separation
and filtration processes. Its products are used in two primary
segments: energy storage (69% of total sales) and separations media
(31%).
Since Polypore was last selected as the 'Bear of
the Day' on March 8, 2013, the stock has fallen more than -10%,
compared with a +14% return for the S&P 500 over that
stretch.
Third Quarter Results
Polypore delivered disappointing third quarter
results on November 4. Adjusted EPS came in at 11 cents, well below
the Zacks Consensus Estimate of 27 cents. It was the company's 6th
consecutive earnings miss.
Net sales declined 6% to $152.0 million, well short
of the consensus of $167.0 million. Excluding foreign currency
translation, sales were down 7%.
Higher sales in the 'Separtion Media' segment was
more than offset by declines in the 'Energy Storage' segment,
namely within the 'Electronics and EDVs' division as consumer
electronics orders remained weak.
Meanwhile, adjusted EBITDA from continuing
operations (including stock-based compensation) fell 21% to $37.7
million, or 24.8% of net sales.
Estimates Falling
Following the Q3 miss, analysts revised their
estimates significantly lower for both 2013 and 2014, sending the
stock to a Zacks Rank #5 (Strong Sell).
You can see the sharp decline in estimates in
Polypore's 'Price & Consensus' chart:
The Zacks Consensus Estimate for 2013 is now $0.83,
down from $1.17 before the latest earnings report. The 2014
consensus is currently $1.21, down from $1.62 over the same
period.
Premium Valuation
Although shares of Polypore sold off following the
Q3 earnings report, the stock still does not look cheap. Shares
trade around 31x 12-month forward earnings, well above the industry
median of 17x.
Its price to sales ratio of 2.5 is also well above
the industry median of 1.2.
The Bottom Line
With declining sales, falling earnings estimates
and premium valuation, investors should consider avoiding Polypore
until its earnings momentum turns around.
Todd Bunton, CFA is the Growth & Income
Stock Strategist for Zacks Investment Research and Editor of the
Income Plus Investor service.
POLYPORE INTL (PPO): Free Stock Analysis Report
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