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.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||-1.74%|
|MG Value based on 3% Growth||$18.92|
|MG Value based on 0% Growth||$11.09|
|Market Implied Growth Rate||12.36%|
|% 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|
|Number of Consecutive Years of Dividend Growth||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2017|
|Total Current Assets||$1,066,600,000|
|Total Current Liabilities||$570,600,000|
|Shares Outstanding (Diluted Average)||81,500,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.49|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.30|
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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.