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Bear of the Day: Polypore (PPO)

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Polypore International, Inc. (PPO) reported its third consecutive earnings miss on February 20, driven by a 6% decline in sales. This prompted analysts to revise their estimates for both 2013 and 2014 significantly lower, sending the stock to a Zacks Rank #5 (Strong Sell).

Despite the negative earnings momentum, shares still trade at a premium on a forward price-to-earnings and price-to-book basis. This doesn't bode well for shares over the next several weeks.

Company Description

Polypore International is a high technology filtration company that develops, manufactures and markets specialized polymer-based microporous membranes used in separation and filtration processes. Its products are used in two primary segments: energy storage (75% of total sales) and separations media (25%).

The company is headquartered in Charlotte, North Carolina and has a market cap of $1.8 billion.

Fourth Quarter Results

Polypore reported fourth quarter results on February 20. Adjusted earnings per share came in at 33 cents, falling well short of the Zacks Consensus Estimate of 46 cents. It was the company's third consecutive earnings miss.

Sales declined 6% to $180.2 million, falling well short of the consensus of $191.0 million. The 'Electronics and Electric Drive Vehicles (EDVs)' division within the energy storage segment was particularly soft due to weak end-market demand.

Estimates Falling

Following the Q4 earnings miss, analysts revised their estimates significantly lower for both 2013 and 2014. This sent the stock to a Zacks Rank #5 (Strong Sell). The 2013 Zacks Consensus Estimate is now $1.69, down from $2.08 just 30 days ago. And the 2014 consensus is now $2.21, down from $2.73. You can see this sharp decline in the company's 'Price & Consensus' chart:

The Zacks Industry Rank isn't very bullish either. The 'Electronic - Miscellaneous Component' industry falls in the bottom 11% of all the industries that we rank.

Premium Valuation

Shares of Polypore trade at 22x 12-month forward earnings, which is a premium to its historical multiple of 21x and the industry median of 17x. Its price to book ratio of 3.1 is also above its historical median of 2.9 and the peer group median of 1.4.

Polypore also carries a long-term 'Underperform' Zacks Recommendation.

The Bottom Line

With negative earnings momentum and premium valuation, don't expect strong outperformance from this stock anytime soon.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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