Tuesday, December 30, 2014

Methanex Corp. 2

I do not own this stock of Methanex Corp. (TSX-MX, NASDAQ-MEOH). I started a spreadsheet in November 2010 as I had read some good reports on the stock at that time. It is also got a solid "C" grade in a 2009 money sense review of stocks. Money Sense rated the top 100 Canadian Dividend Paying stocks. Money Sense was looking for stocks that provided generous income at reasonable prices.

Lately, I am been given a blow by blow account of certain items for all the stock that I cover. I would like to change that a bit and so will be trying out different approached in the next while. However, I do not know how I would change testing of the stock price in a number of areas.

I was looking for a mission statement for this company. I would think that by now every company would have one. So far in some stock I have looked at that has not been true. The best I can get from this company is the following. The company says that their customers trust them to provide methanol through safe, reliable and cost-effective operations. They say that have a responsible Care program to look after the health and safety of employees and that they strive to be a respected and valued corporate citizen.

Outstanding share in 2013 have been increased by 1.79M shares in connection with stock options with a book value of $38.6M. The value of this number of shares at the end of 2013 would be $112.5M. This number of shares would be 1.86% of the total outstanding shares at the end of 2013. This is a rather high number. Most companies I have looked at increase outstanding shares by less than 0.5% for stock options.

This is not an anomaly as the outstanding shares were increased for stock options by 1.62M in 2012. This number of shares was 1.11% of the outstanding shares at the end of 2012. The book value of these shares was $18.8M and the value of this number of shares would be $66.7M at the end of 2012.

There is some insider ownership with the CEO having shares worth around $4.6M, the CFO having shares worth around $1.6M, the chairman having shares worth around $13.9M and a Subsidiary Executive having shares worth around $1M. These are relatively small amounts compared to the total outstanding shares of this company. The chairman's shares are only 0.23% of the company's outstanding shares.

When I look at insider trading I find insider selling at $13.8M and net insider selling at $13.5M with some $0.3 of insider buying. Net Insider selling is at 0.22% of market cap and therefore not a large amount.

The 5 year low, median and high median Price/Earnings per Share ratios are 10.28, 13.68 and 18.69. These are a lot higher than the corresponding 10 year ratios of 7.46, 11.20 and 14.79. The problem with looking at past P/E Ratios for this stock is that P/E ratios have in the past been negative (2013's high was -47.98) and been outrageously high because of very low earnings (2009's high P/E was 2035.16). However, I have values on this stock from 1995, and the historical median high and the historical high were at 14.64 and 28.67. (For the historical high the calculation would have gotten rid of anomalies like the P/E Ratio for 2009.)

The current P/E Ratio is 10.65 based on a stock price of $53.85 and 2014 EPS estimate of $4.35 US$ or $5.06 CDN$. The 12 month EPS ending in the third quarter of 2014 was at $4.66 US$ or $5.42 CDN$ so the estimates are realistic. In connection with data I have on P/E Ratios for this stock, I would think that a P/E Ratio of 10.65 says that the stock price is relatively reasonable.

I get a Graham Price of $49.19. The 10 year low, median and high median Price/Graham Price Ratios are 0.81, 1.03 and 1.23. The current P/GP Ratio based on a stock price of $53.85 is 1.09. This stock price test suggests that the stock price is relatively reasonable.

The 10 year Price/Book Value per Share Ratio is 1.96 and the current P/B Ratio at 2.53 is some 30% higher. The current P/B Ratio is based on a BVPS of $21.26 and a stock price of $53.85. The stock price test suggests that the stock price is relatively expensive.

The value of this test is that there are no estimates involved. The reason it shows that the stock price is expensive is that the stock price has been increasing far faster than the book value. Book Value has only grown at 1.4% and 8% per year over the past 5 and 10 years. The Stock price has grown by 21.3% and 9.4% per year over the past 5 and 10 years.

The 5 year median, the historical average and the historical median dividend yield are 2.45%, 2.98% and 2.26% and are 12%, 27% and 4.5% higher than the current dividend yield of 2.16%. Although it is better that the current dividend yield be higher than the other ones, the median dividend yields are not that much higher than the current dividend yield and this would suggest that the stock price would be relatively reasonable.

When I look at analysts' recommendations they are Strong Buy, Buy, Hold, and Underperform. Since most of the analysts have given a Buy or Strong Buy recommendation, the consensus recommendation would be a Buy. The 12 month consensus stock price is $70.10. This implies a total return of 32.34% with 30.18% from capital gains and 2.16% from dividends.

A recent report in Forbes says that this company hit oversold territory in December at $50.50. It ranks this company high as an interesting investment in a dividend paying stock. In mid-December 2014 Zacks had a bearish view on this stock and other similar stocks. Although Methanex shares are up 80% over the past 12 months, TD Analyst Cherilyn Radbourne thinks there might be more upside to this company.

Sound bit for Twitter and StockTwits is: Stock price to high end of reasonable range. The stock price seems reasonable at a number of levels. However, I think that the high level of stock options being granted could be a problem. See my spreadsheet at mx.htm.

This is the second of two parts. The first part was posted on Monday, December 29, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

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. Head Office is in Vancouver, B. C. Canada. Its web site is here Methanex.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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