PolyOne Corporation - Value

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Are the global specialty chemical makers still hot? We're about to find out as PolyOne Corporation ( POL ) is expected to report fourth quarter results on Feb 2. After a record 2010, this Zacks #1 Rank (Strong Buy) is still expected to see 15% earnings growth in 2011. But what will be the outlook for 2012?

PolyOne manufactures specialized polymer materials which are found in just about every industry from transportation, to colors used in packaging, to electronics and healthcare.

It provides services in natural rubber latex compounds, color additives, as well as screen printing inks and dyes, to name a few.

Acquisition of ColorMatrix Group Transforms the Business

On Dec 21, 2011, PolyOne announced that it had closed on the acquisition of ColorMatrix Group, a manufacturer of specialty additives, liquid colorant and dosing technologies with 162 patents and 107 pending applications.

PolyOne considered the acquisition to be a "game changer" because it expects to make more than 50% of its earnings from the specialty chemical platform in 2012, up from just 2% in 2005. It is expected to add 2 to 3 cents per share in earnings in 2012.

PolyOne paid $486 million using a combination of cash and a $300 million Term Loan B.

Expanding Production Capabilities in China

On Dec 19, the company announced that it now had production capabilities for its Stan-Tone specialty colorants portfolio in Shenzhen China. The portfolio had previously been produced exclusively in the United States.

The new capability was added due to global demand for colorant dispersions in thermoset polymers for building and construction in applications like sealants, caulks, flooring and indoor and outdoor decking.

Growth Slowed in the Third Quarter

On Oct 25, PolyOne reported third quarter results and met the Zacks Consensus Estimate of 26 cents. That is up 2 cents from the third quarter of 2010.

Revenue rose 8% to $735.8 million from $680.8 million.

The company experienced "headwinds" in the quarter, including slower global economic growth and a weaker euro. It expected the challenges to remain in the near term.

Analysts Expect Growth in 2012

PolyOne is expected to make $1.02 per share for 2011. That is earnings growth of 15.7% as the company made just 88 cents per share in 2010.

But all is not doom and gloom for 2012 either. 2 estimates out of 7 have moved higher in the last 30 days pushing the Zacks Consensus Estimate up to $1.12 from $1.11 per share.

That is further earnings growth of 9.7%.

We'll know more when the company reports its fourth quarter results which is expected to be on Feb 2.

Still a Value

PolyOne had been a value stock for most of 2011 even though shares had been at 10-year highs before the summer sell-off. While they've rebounded since then, they're still under prior highs.

PolyOne is also still a value.

In addition to having a P/E of 12.6, which is under the 15x level I use for value stocks, it also has a price-to-book ratio of 2.2.

A P/B ratio under 3.0 usually indicates value.

Another value indicator, the price-to-sales ratio, is also flashing value. PolyOne's P/S is just 0.5. A P/S ratio under 1.0 can mean a company is undervalued.

PolyOne has other strong fundamentals as well including a solid 1-year return on equity (ROE) of 16.8% which is above its peers at 14.3%.

The upcoming earnings report should provide clues into how much slowing, if any, is happening in the global economy, especially in the key Chinese market.

Tracey Ryniec is the Value Stock Strategist for Zacks.com . She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec .


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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