Chemicals Stocks

LyondellBasell Industries Valuation – November 2015 Update $LYB

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how LyondellBasell Industries (LYB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): LyondellBasell Industries N.V. (LyondellBasell) is a global, independent chemical company. The Company operates through five segments: Olefins and Polyolefins-Americas (OandP-Americas), Olefins and Polyolefins-Europe, Asia, International (OandP-EAI), Intermediates and Derivatives (IandD), Refining, and Technology. Its OandP-Americas segment produces and markets olefins, including ethylene and ethylene co-products, and polyolefin. Its OandP-EAI segment produces and markets olefins, including ethylene and ethylene co-products, polyolefin and specialty products, including polybutene-1 and polypropylene compounds. Its IandD segment produces and markets propylene oxide and its co-products and derivatives, acetyls, including methanol and ethylene oxide. Its Refining segment refines heavy, high-sulfur crude oil. Its Technology segment develops and licenses chemical and polyolefin process technologies and manufactures and sells polyolefin catalysts.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of LYB – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $43,272,507,663 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.16 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 81366.67% Pass
6. Moderate PEmg Ratio PEmg < 20 12.68 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.10 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.16 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.29 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

LYB value Chart November 2015

EPSmg $7.62
MG Growth Estimate 15.00%
MG Value $293.34
Opinion Undervalued
MG Value based on 3% Growth $110.48
MG Value based on 0% Growth $64.76
Market Implied Growth Rate 2.09%
Current Price $96.58
% of Intrinsic Value 32.92%

LyondellBasell Industries qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short history and the high PB ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $1,419.05 in 2011 to an estimated gain of $7.62 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.09% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on LyondellBasell Industries (LYB)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

LYB Charts November 2015

Net Current Asset Value (NCAV) -$11.68
Graham Number $59.42
PEmg 12.68
Current Ratio 2.16
PB Ratio 6.10
Dividend Yield 3.06%
Number of Consecutive Years of Dividend Growth 5

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $11,198,000,000
Total Current Liabilities $5,193,000,000
Long-Term Debt $7,742,000,000
Total Assets $23,935,000,000
Intangible Assets $1,187,000,000
Total Liabilities $16,607,000,000
Shares Outstanding (Diluted Average) 463,000,000

Earnings Per Share History

Next Fiscal Year Estimate $9.70
Dec14 $7.99
Dec13 $6.75
Dec12 $4.92
Dec11 $3.74
Dec10 $2.78
Dec09 -$7,105.20

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.62
Dec14 $6.13
Dec13 -$469.00
Dec12 -$944.17
Dec11 -$1,419.05
Dec10 -$1,893.79
Dec09 -$2,368.40

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Enterprising Investor – November 2015
10 Companies Benjamin Graham Would Invest In Today – September 2015
The Best Companies of the Chemicals Industry – August 2015
10 Undervalued Companies for the Enterprising Dividend Stock Investor – August 2015
15 Best Stocks For Value Investors This Week – 8/22/15

Other ModernGraham posts about related companies

Albemarle Corporation Valuation – November 2015 Update $ALB
Dow Chemical Company Analysis – October 2015 Update $DOW
Sigma-Aldrich Corporation Analysis – September 2015 Update $SIAL
FMC Corporation Analysis – September 2015 Update $FMC
Eastman Chemical Company Analysis – September 2015 Update $EMN
Ashland Inc. Analysis – Initial Coverage $ASH
The Best Companies of the Chemicals Industry – August 2015
LyondellBasell Industries Analysis – August 2015 Update $LYB
Albemarle Corporation Analysis – Initial Coverage $ALB
E I Du Pont de Nemours & Company Analysis – August 2015 Update $DD

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top