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PolyOne Corp Valuation – March 2018 $POL

Company Profile (obtained from Marketwatch): PolyOne Corp. engages in the business of thermoplastic compounds. It specializes in polymer materials, services and solutions with operations in specialty polymer formulations, color and additive systems, plastic sheet and packaging solutions and polymer distribution. The company also involved in development and manufacture of performance enhancing additives, liquid colorants, fluoropolymers and silicone colorants. It operates through the following segments: Color, Additives & Inks; Specialty Engineered Materials; Designed Structures & Solutions; Performance Products & Solutions; and PolyOne Distribution. The Color, Additives & Inks segment is the production of specialized custom color and additive concentrates in solid and liquid form for thermoplastics, dispersions for thermosets, as well as specialty inks, plastisols, and vinyl slush molding solutions. The Specialty Engineered Materials segment provides polymer formulations, services and solutions for designers, assemblers and processors of thermoplastic materials. The Designed Structures & Solutions segment refers to specialized, full service and innovative solutions in engineered polymer structures, rigid barrier packaging and specialty cast acrylics. The Performance Products & Solutions segment is comprised of the Geon Performance Materials and Producer Services business units, which delivers an array of products and services for vinyl molding and extrusion processors located in North America, and Asia. The PolyOne Distribution segment distributes engineering and commodity grade resins, including PolyOne-produced solutions, principally to the North American and Asian markets. PolyOne was founded on August 31, 2000 and is headquartered in Avon Lake, OH.

POL Chart

POL data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of POL – March 2018

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 $3,504,884,034 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.87 Fail
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 -8.13% Fail
6. Moderate PEmg Ratio PEmg < 20 33.21 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.90 Fail
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 1.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.57 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.30
MG Growth Estimate -1.74%
MG Value $6.55
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $18.92
MG Value based on 0% Growth $11.09
Market Implied Growth Rate 12.36%
Current Price $43.33
% of Intrinsic Value 661.90%

PolyOne Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.48 in 2014 to an estimated $1.3 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.36% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into PolyOne Corporation revealed the company was trading above its Graham Number of $20.37. The company pays a dividend of $0.58 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 33.21, which was above the industry average of 31.55. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.76.

PolyOne Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$12.76
Graham Number $20.37
PEmg 33.21
Current Ratio 1.87
PB Ratio 5.90
Current Dividend $0.58
Dividend Yield 1.34%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $1,066,600,000
Total Current Liabilities $570,600,000
Long-Term Debt $1,276,400,000
Total Assets $2,705,300,000
Intangible Assets $1,010,500,000
Total Liabilities $2,106,800,000
Shares Outstanding (Diluted Average) 81,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.49
Dec2017 -$0.71
Dec2016 $1.95
Dec2015 $1.63
Dec2014 $0.85
Dec2013 $2.53
Dec2012 $0.80
Dec2011 $1.84
Dec2010 $1.69
Dec2009 $0.53
Dec2008 -$2.94
Dec2007 $0.12
Dec2006 $1.33
Dec2005 $0.51
Dec2004 $0.26
Dec2003 -$3.07
Dec2002 -$0.65
Dec2001 -$0.51
Dec2000 $0.26
Dec1999 $2.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.30
Dec2017 $0.89
Dec2016 $1.65
Dec2015 $1.51
Dec2014 $1.48
Dec2013 $1.69
Dec2012 $0.97
Dec2011 $0.79
Dec2010 $0.22
Dec2009 -$0.37
Dec2008 -$0.60
Dec2007 $0.33
Dec2006 $0.18
Dec2005 -$0.50
Dec2004 -$0.91
Dec2003 -$1.12
Dec2002 -$0.01

Recommended Reading:

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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.

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