Methanex Down Near Fair Price

Methanex Corp. (MEOH - Analyst Report) is the world's largest supplier of methanol. Potential markets for methanol include dimethyl ether and bio-diesel businesses. The company has embarked on a number of growth projects, including the one on alternative natural gas sources in Chile.

In 2008, the company has incurred negative cash margins on reselling methanol purchased from other producers. Further, lower methanol demand and pricing as well as an increase in worldwide inventories due to the global economic crisis are negatively affecting the company.

Methanex is currently valued at 5.9x our 2010 earnings of $1.31, which is at a sharp discount to the industry median of 11.0x. The company has potential markets for methanol products including DME and bio-diesel.

However, falling methanol demand and pricing as well as an increase in global inventories due to the worldwide economic crisis are negative factors affecting the company. We believe that the stock should trade at 5.3x our 2010 earnings. This implies a $7.00 target and thus a Hold rating.