Tuesday, November 30, 2010

Methanex Corp 2

I am starting to review this stock as I have read some good reports on it lately. They on the dividend lists that I follow of Dividend Achievers and Dividend Aristocrats (see indices).

When I look at the Insider Trading reporting, I find a little bit of Insider Buying over the past year and no Insider Selling. The negatives are that insiders except directors, have more options than shares. The other negative is that the company’s dividends were not raised this year. They have already announced the last dividend of this year and it is at the old rate. They will probably come off the dividend lists next year because of this.

When I look at the P/E ratio, I get a 5 year low median ratio of 5.9 and a high median ratio of 14.7. So, the current one based on earnings estimates at 29.5 is rather high. However, the forward P/E is just 10.8. P/E ratios based on last 12 months earnings come in at 26.9, a little lower than mine. In this instant, the forward P/E is worth looking at because the current P/E ratio is high because this company is not expected to earn much this year. Earnings are not expected to start to recover until 2011.

I get a Graham Price of $17.92 for 2011, but of $29.57 for 2012. The stock price is almost 70% above this year’s Graham Price, but just 3% above next years. When I look at the Price/Book Value Ratio, I get a current ratio of 2.19. The 10 year average is just 1.59. However, the P/B Ratio has often been above 2.19, as it tends to vary a great deal from less than 1.00 to 2.40. A P/B ratio of 2.19 is rather reasonable.

The last thing to look at is the dividend yield. At 2 %, it is lower than the 5 year average of 2.9%. They probably did not raise the dividend in 2010 as the payout ratio on both earnings and cash flow was too high at about 61% and 26% respectively. For 2011, it is expected that the payout ratio will be much better at 23% and 14%, respectively. However, these better payout ratios are based on the current dividend rate. So, there may not be a dividend increase in 2011 either. However, as the economy improves, there will probably be increases down the road.

When I look at analysts’ recommendations, I find lots of Strong Buy and Hold recommendations. There are fewer Buy recommendations and at least one Underperform recommendation. The consensus would be a Hold. (See my site for information on analyst ratings.) The thing is if you are interested in this company for the long term, I can see why some analysts think this is a strong buy. However, if you expect to get capital gains on this stock any time soon, you will probably be disappointed.

Analysts generally like the management of this company. The analysts’ saying this stock is a buy think that there will be a big future global demand for methanol. Even analysts with a Hold recommendation, think the company has a great future, only it will not get any traction until at least 2011. This is often the way with recommendations. It depends on why are buying a stock and also on whether you are a short term or long term buyer.

This looks like an interesting stock and will continue to track it.

Methanex is the world's largest supplier of methanol to major international markets in North America, Asia Pacific, Europe and Latin America. Methanol is an important ingredient in many of the essential industrial and consumer products. Its web site is here Methanex. See my spreadsheet at mx.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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