Polypore International (PPO) was recently downgraded by Chris Kapsch, Analyst at Topeka Capital Markets, based on estimates that the chemicals company’s stock is fairly valued and expectations of forced divestiture of its Microporous division.
“We think the forced divestiture, which now has to happen within roughly six months, will result in a transaction dilutive to EPS by as much as $0.15 to $0.20. This dilutive transaction, which we think of now as imminent, is not factored into the consensus earnings expectations, so we view that as a negative catalyst,” Kapsch said.
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Kapsch says there are positive catalysts on the horizon for PPO, but the timing of the divestiture and the longer-term prospects for its electric-drive vehicle exposure lead him to sit and watch the stock from the sidelines.
“On valuation, we think Polypore‘s stock is roughly fairly valued here. I tend to believe in the longer-term adoption story associated with electric-drive vehicles, a key piece of any positive thesis on Polypore. Currently, the adoption trajectory is more muted than what we would like to see; with a dilutive transaction imminent, we would prefer being on the sidelines with that particular stock at this juncture,” Kapsch said.
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