Needham analyst Michael Lew believes that lithium battery separator producer Polypore ( PPO) is positioned to "usher in a new era of transportation," owing to its technical advantage. In an equity report, Lew says the company's Celgard division, which makes this separator material, sets itself apart from competitors by using a lower-cost "dry stretch" manufacturing process; competitors are using a "wet process" technology. Its "breath" of product offerings -- monolayer and trilayer configurations -- also gives it an edge. Demand for Celgard's products are "accelerating" with the launch of various electric vehicle programs and scheduled rollouts, which Polypore is getting ready for, according to Lew. Polypore recently announced a $32 million lithium separator production expansion project to meet the expected rev up in electric vehicle demand, adding to a number of its other expansion projects around the world. "This is not a 'build it and they will come' strategy, in our view, as management noted definitive 'line of sight' into demand linked to specific customer vehicle programs," BB&T analyst Kevin Maczka said in a note. The analyst sees sustained plus 20% growth potential in the company's lithium business -- Polypore's highest margin unit -- in the coming years.
Reflecting Maczka's view is Ardour analyst JinMing Liu, who views Polypore's ramp up of production capacity and debt-load reduction as a sign of its "prudent decisions" with capital. He sees strong growth in the company's lithium battery segment in 2011 and notes that the repayment or refinancing of the rest of its senior subordinate notes, which is anticipated, will further lower Polypore's interest expense. "The replacement of older debt with new debt at lower interest rates will help reduce the interest rate for the company in calendar year 2011," D.A. Davidson analyst Avinash Kant said in an investor note. William Blair analyst Brian Drab notes that he expects the company to have increased its lithium battery separator production capacity by more than 150% by mid-2012.