Methanex Corp (USA) (NASDAQ:MEOH)

CAPS Rating: 5 out of 5

The Company is a producer, marketer and supplier of methanol to the international markets of North America, Asia Pacific and Europe as well as Latin America.

Recs

3
Player Avatar notzia (73.50) Submitted: 2/11/2009 12:20:06 PM : Outperform Start Price: $6.62 MEOH Score: +752.85

MEOH is a supplier of methanol to most major international markets. In 2007 its total sales represented about 17% of the global demand.

I am suspicious that MEOH essentially trades as a commodity. Using monthly numbers, I correlated MEOH’s beginning of the month stock price with the monthly contract price per gallon of methanol since May 2001; that correlation was .83. The contract price per gallon in February 2009 is nearly the same it was in 2001 (70¢ vs. 77¢). The high for methanol was $2.50 in Dec/Jan a year ago. There is still some downside risk, but I think it will be short-lived and could provide the opportunity to add to my position.

Based on the fundamentals, MEOH is a solid buy. As I write this, the price is $7.14, the P/E is 1.9, the yield is 8.4% and the book value is $13.96 (nearly twice the price, and the intangibles are nil). Since 2000, the EPS has grown 340%, which translates into a compounded annually 24% growth rate. The ROE has exceeded 15% for the past four years, and exceeded 25% the last two. The company has had positive free cash flow since 2000.

I look at three indicators of fiscal soundness: the Altman Z is at 3.46, anything above 3 indicates that there is little risk of bankruptcy; the Piotroski F is at 6, short of the goal of 8 or 9, though well above the dangerous 2 or below; and the Sloan accrual is at -.23, -5 or lower is the goal, but anything negative is still regarded as a good sign.

I look at four valuation estimates. The two I usually give the greatest weight are very close. My Discounted Cash Flow estimated share value is $42.13 which gives me a margin of safety (MOS) of 83%. My estimate based on earning growth (discounted to reflect a desire of at least 15% annual growth) was $42.97 which also gives an 83% MOS. My estimate based on sustainable growth (discounted to reflect a desired 15% annual growth) was $13.85 and only a 48% MOS. The fourth method is based on Graham intrinsic value, and that estimate was $142.80 with a 95% MOS. All four methods indicate that MEOH is severely undervalued.

Member Avatar Tutom (< 20) Submitted: 2/15/2009 6:07:55 PM
Recs: 0

I bought up some more at $6.05 and hope to get some more in the 6 to 7 dollar range if I see volume pick up as it did around $6. Ken Fisher recommended this as a buyout candidate last year. It really does seem like a nice bite size morsel for a chemical company.

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