Polypore International: End markets to fuel growth

Jennifer Schonberger | May 23, 2008 4:51pm EDT | Comment

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Polypore International Inc. (NYSE:PPO)
Charlotte, N.C.
http://www.polypore.net

52-week low/high: $12.15/$25.99
Shares Outstanding: 40.33 million
Market Capitalization: $948 million

Much like the energizer bunny that keeps going and going, Polypore International, Inc. (NYSE:PPO) isn’t showing signs of slowing down any time soon.

The chemical company develops polymer-based membranes used to separate various materials from liquids and operates in two segments: energy storage and separations media. The energy storage segment develops polypropylene and polyethylene membrane separators for lithium batteries that are used in personal electronic devices, power tools and other electric vehicles. This segment also offers polymer-based membrane separators for lead-acid batteries, which are used in batteries for automobiles and other motor vehicles.

The separation media segment manufactures filtration membranes and modules, which are used in health-care, industrial, and specialty filtration applications. This segment also provides membranes for hemodialysis, blood oxygenation and plasmapheresis applications.

Polypore sells its products and services primarily to manufacturers and converters who incorporate its products into their finished goods.

One of the keys to this company is that it sells its products to manufacturers whose end markets retain a strong outlook. Demand for lithium-ion batteries for hybrid cars and electric cars (for example) is on the rise as the technology burgeons. With oil breaching new highs everyday, the electric car looks more and more like a viable option for the consumer. According to William Blair & Co. the lithium battery and hemodialysis industries are projected to grow 10% and 7%, respectively in the long term.

Aside from strong end-market demand, the company generates 75% of its revenues overseas — which is good news for investors looking for international exposure as the domestic economy continues to languish. The company announced this month that it acquired Yurie-Wide Corp., a South Korean company that develops technology for the manufacture of polyethylene separators for lithium-ion batteries. The addition broadens its lithium-ion product portfolio and offers a manufacturing base in Asia, essentially augmenting its prospective customer base.

You might not think this business is all that electrifying, but the company’s financial results and share price are exhilarating. Since going public roughly 10 months ago, the chemical company has clocked three solid quarters, surprising to the upside. Mirroring such robust quarters, the share price has appreciated 48% year to date.

For the first quarter ended March 29, 2008, net income rocketed 225% to $10.6 million, or $0.26 per diluted share, from $2.1 million, or $0.08 per share, in the first quarter of 2007. Sales increased 13% to $145.3 million from $129 million for same quarter last year.

These consecutive robust results should come as no surprise. According to William Blair analyst Brian Drab, the company benefits from recurring revenue streams mostly from the replacement-car-battery market and consumable membranes in health-care applications. However, the analyst warns that Polypore’s lithium business, one of the company’s primary long-term growth engines, can be volatile, with growth varying meaningfully from quarter to quarter.

If revenues keep going and going, as purported, so should the stock price.

Note: Polypore International Inc. (NYSE:PPO) is on the "Watch List" of Growth Report, a subscription investment newsletter from Business Financial Publishing, which also publishes SmallCapInvestor.com. As a Watch List company, Polypore displays many characteristics found in successful stock winners, and is being closely monitored for possible inclusion in the Growth Report portfolio at a later date.