Thursday, May 20, 2010

Polypore International (PPO) - Derivative Play on Electronic Battery Growth

Some interesting names popped up on the screen I posted yesterday for relative strength - although right now individual stories mean little as everything is hostage to the greater market. One such company is Charlotte based Polypore International (PPO). On first glance a lowly cyclical company in 2 segments:

Polypore International, Inc., a technology filtration company, develops, manufactures, and markets microporous membranes used in separation and filtration processes. It operates in two segments, Energy Storage and Separations Media.

  1. The Energy Storage segment offers membranes that provide the function of separating the cathode and anode in various applications, including personal electronic devices, cordless power tools, electric drive vehicles, and electricity grid storage systems. Its membranes are also used in lead-acid batteries that are used in transportation and industrial applications.
  2. The Separations Media segment provides membranes that are used as high technology filtration element in various medical and industrial applications. Its membranes are used in applications, such as hemodialysis, blood oxygenation, plasmapheresis and various high-performance microfiltration, ultrafiltration, and gasification/degasification applications.

As of last quarter's earnings, the Energy Storage business was $101M (of $145M) in revenue, while Separations Media was the remaining. Energy Storage is also the more interesting piece due to Polypore's exposure to the nascent Electronic Drive Vehicle segment.


This is roughly a $850M market cap company that trades 350K shares a day, so in our wheelhouse. I can see (in better times for the market) this being the type of company that speculative money might flow into whenever there is excitement about battery stocks which has happened from time to time - even Warren Buffet is playing this general theme with China's BYD.

Growth metrics on the top line look pretty good, and there is good international scope. Per last ER:
  • Sales were $145.3 million, an increase of $36.4 million, or 33%, compared with the prior-year period. Excluding the impact of the euro to dollar exchange rate, sales increased 29%.
  • Adjusted Net Income and Adjusted EPS were $14.1 million and $0.31 per diluted share, compared with $4.0 million and $0.09 per diluted share in the prior-year period.
  • "The year is off to a good start and our results reflect strength in all of our businesses. In addition to year over year economic improvement, we are benefitting from continued strong growth in Asia and early sales into Electric Drive Vehicles (EDVs)."

We'll focus on the Energy Storage business although the Separations Media also grew 25% year over year.
  • In the quarter, sales for the Energy Storage segment were $101.4 million, an increase of $27.7 million, or 38%, compared with the prior-year period (up 34% net of the impact of the euro to dollar exchange rate).
  • Sales of lead-acid battery separators were $71.0 million, an increase of $14.6 million, or 26%, compared with the prior-year period, driven by global economic improvement and strong continued growth in Asia.
  • Lithium battery separator sales were $30.4 million, an increase of $13.1 million, or 76%. The increase reflected economic improvement in consumer electronics as well as continued application proliferation and new product launches, including emerging EDVs.

The earnings report caused a gap up and the stock was off to the races until this selloff in the markets. The gap it created was in the mid $17s so if it comes back to fill this and then reverses and heads back upward, it might be a compelling technical trade ... frankly it's one of the few stocks holding the 50 day moving average so either way it's in good shape right now.

EPS estimates are all over the map - last quarter's 31 cents blew up the analysts expectation of 14 cents. The previous quarter Polypore did a 36 cent quarter versus analysts 17 cents. Considering 7 analysts follow the name, that is some serious under promise, over deliver. For full year 2010 analysts have taken the number up to 94 cents, from 71 cents just 30 days ago - so we're talking about 20x forward estimates. Not cheap but hey it's a "hot new battery play on electronic cars". ;) And at this point it seems analysts have no idea what to forecast based on the last 2 quarters of >100% beats.

One last point, this is one of the companies receiving taxpayer monies via grants as part of 'stimulus', so if you can't beat 'em, join 'em!

Need to do more digging but one to keep an eye on with an interesting mix of fundamentals and technicals. Company website.

No position

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