Chemicals Stocks

LyondellBasell Industries NV Valuation – January 2019 $LYB

Company Profile (excerpt from Reuters): LyondellBasell Industries N.V., incorporated on October 15, 2009, is a plastics, chemicals and refining company. The Company operates through its Advanced Polymer Solutions segment. It produces olefins and polyethylene (PE) and polypropylene (PP), high density polyethylene (HDPE), low density polyethylene (LDPE) and linear low density polyethylene (LLDPE). It produces PP homopolymers, PP impact copolymers and PP random copolymers. PP compounds are produced from blends of polyolefins and additives and are sold to the automotive and home appliances industries. Its engineered composites are lightweight, materials that are used in infrastructure, aerospace and automotive applications such as headlamps. It also manufactures powders, which is a specialty particle materials used in coatings, rotational molding, toll compounding and other technical applications. Masterbatches is a coloring and additive materials used in the production of paper, paint and plastic goods around the world.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LYB – January 2019

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 $31,908,835,157 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.82 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 -100.47% Fail
6. Moderate PEmg Ratio PEmg < 20 7.68 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.93 Pass
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 1.82 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.45 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

EPSmg $10.84
MG Growth Estimate 11.51%
MG Value $341.49
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $157.11
MG Value based on 0% Growth $92.10
Market Implied Growth Rate -0.41%
Current Price $83.17
% of Intrinsic Value 24.36%

LyondellBasell Industries NV is suitable for the Enterprising Investor but not 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. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $6.13 in 2014 to an estimated $10.84 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.41% annual earnings loss 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 above the price.

At the time of valuation, further research into LyondellBasell Industries NV revealed the company was trading above its Graham Number of $77.64. The company pays a dividend of $3.55 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 7.68, which was below the industry average of 20.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.01.

LyondellBasell Industries NV performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$16.01
Graham Number $77.64
PEmg 7.68
Current Ratio 1.82
PB Ratio 2.93
Current Dividend $3.55
Dividend Yield 4.27%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $11,383,000,000
Total Current Liabilities $6,242,000,000
Long-Term Debt $7,471,000,000
Total Assets $28,696,000,000
Intangible Assets $2,801,000,000
Total Liabilities $17,627,000,000
Shares Outstanding (Diluted Average) 390,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.81
Dec2017 $12.23
Dec2016 $9.13
Dec2015 $9.59
Dec2014 $7.99
Dec2013 $6.75
Dec2012 $4.92
Dec2011 $3.74
Dec2010 $2.78
Dec2009 -$7,105.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.84
Dec2017 $9.94
Dec2016 $8.43
Dec2015 $7.58
Dec2014 $6.13
Dec2013 -$469.00
Dec2012 -$944.17
Dec2011 -$1,419.05
Dec2010 -$1,893.79
Dec2009 -$2,368.40

Recommended Reading:

Other ModernGraham posts about the company

10 Best Dividend Paying Stocks for the Enterprising Investor – September 2018
10 Best Dividend Paying Stocks for the Enterprising Investor – May 2018
10 Low PE Stock Picks for the Enterprising Investor – May 2018
10 Undervalued Stocks for the Enterprising Investor – April 2018
5 Great Stocks This Week – 3/5/18

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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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