Updates
10/25/2004 – Closing Price $15.73
On October 1st Methanex hit its 24-month price target. Methanex recently reported very strong earnings due to strong demand and low inventories. Earnings for the first nine months of the year have already exceeded the earnings estimate used for establishing the target price. If you own Methanex, continue to hold because management has indicated that they anticipate continuation of the current environment. If you do not own Methanex, use any pullback in the share price below $14.00 as an opportunity to buy since it appears that first-year earnings will come in nearly 2/3rds higher than the estimate used to obtain the current $15.00 target price.
Mike Shinn www.fizone.com
The Logic
Methanex is an attractive buying opportunity for the following reasons:
- Stock is currently 23% undervalued
- Industry leader in commodity chemical in strong world commodity market
- Industry leader for chemical that has huge potential as a future fuel
- Canadian dollar should gain strength versus U.S. dollar for next several years
- Approximate 4% dividend yield with potential for increasing dividends
The factors that separate Methanex
from other firms with similar profiles are:
- Low valuation ratios in comparison to industry
- Potential for dramatic improvement in return ratios
- Commitment to shareholder return through stock buybacks and dividends
Areas for Shareholder Concern:
- Management needs to provide more information on sales, general, and administration expenses
- Major disruptions of natural gas feed stocks could disrupt production
- Improvement of return on equity is essential
Expectations:
Current strong demand for methanol as a commodity will drive revenue growth at a strong pace for several years. Within several years methanol will begin to emerge as a fuel. This will result in an even higher value for the stock.
Mike Shinn for www.fizone.com
February 25, 2004
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