NEW YORK (
) -- Shares of
broke out to a new 52-week high Monday after Robert W. Baird lifted its rating on the stock to outperform, in part because of burgeoning optimism about electric cars.
Charlotte, N.C.-based Polypore makes polymer-based membranes for a number of filtration and separation applications. About two-third of its business is in energy storage, specifically usage of its products in lithium and lead-acid batteries,
, and that's where Baird sees a growing opportunity as production of electric-drive vehicles, or EDVs, like
Volt begins to ramp up.
"We are upgrading the shares based on an improved confidence level that aggressive capacity additions will be matched against forecast EDV production related demand," the firm said in a note to clients. "Matching of supply and demand suggest PPO
Polypore margins should hold reasonably firm and our revenue/EPS estimates hold upside."
Baird also sees Polypore enjoying an early mover advantage.
We believe PPO's strong initial competitive position in lithium separators for EDVs should drive share gains in the separator market globally," said the firm, which set a 12-month price target of $43 on the stock.
The shares nearly eclipsed that level during Monday's session, however, hitting a new intraday peak for the year of $42.95. The stock finished up $5.90, or 16.3%, to close at $42.02. Volume of 2.9 million was more than six times the issue's trailing three-month daily average of around 486,000. Year-to-date, Polypore is up more than 200% and including Monday's surge, the shares have now risen in four straight sessions, leaving behind their 50-day and 200-day moving averages of $33.86 and $27.67, respectively.
Baird said it recently met with Polypore's management, so that's a factor in its "improved confidence level" in the stock as it came away thinking "a possible acceleration in lithium demand could happen sooner than we previously expected."
Topline growth has been modest for Polypore in fiscal 2010 but that hasn't held the stock back as its earnings were at least 40% above Wall Street's consensus expectations for the first two quarter of the year. The company reported its fiscal third-quarter results on Nov. 3, posting an in-line adjusted profit of $12.6 million, or 27 cents a share, on revenue of $151.7 million.
For its current fourth quarter ended on Dec. 31, the average estimate of analysts polled by
is for earnings to grow to 34 cents a share with revenue rising less than 5% on a sequential basis to $158.1 million.
At current levels, shares of Polypore, which also makes membranes used in blood filtration systems and ones for other industrial purposes, such as gasification and degasification processes, are trading at a forward price-to-earnings multiple of roughly 27 times Wall Street's current estimate for earnings of $1.57 per share in fiscal 2011.
The view of the stock in the analyst community remains largely positive, despite the tremendous run-up in the past year. Of the 10 analysts covering the shares, seven are at either strong buy (6) or buy (1) with the remainder at hold. But the stock has already outdistanced the analysts' median 12-month price target of $38.50 by a decent margin, so valuation could become a concern if EDV adoption is slower than anticipated.
As part of its disclosure statement, Baird noted it makes market in Polypore shares, has received compensation for investment banking advice from the company in the past 12 months, and has served as a manager or co-manager of a public offering from the company in the past three years.
Written by Michael Baron in New York.
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