In this article let's take a look at Pall Corporation (PLL, Financial), the global leader in filtration, separation and purification technologies. So let´s take a look at this Zacks Rank #2 (Buy) and try to analyze long-term drivers.
A $185 Million Deal
The company expects to make strategic acquisitions. In a $185 million deal, the firm got the ATMI LifeSciences business with all assets, including two locations in Belgium plus a shared facility in Minnesota. The unit makes custom-engineered, flexible packaging solutions, single-use storage systems, mixers and bioreactors for biologic drug manufacturing. The company expected the new line should add $20 million to $30 million in revenue in 2014. "This acquisition immediately strengthens our offering and broadens our already extensive portfolio of advanced solutions for biopharmaceutical customers," Pall CEO Larry Kingsley said in a statement. This will expand the business segment and provide diversification from its more cyclical semiconductor business. After the deal, Entegris (ENTG) announced it would pay $1.15 billion for ATMI. Entegris CEO Bertrand Loy said the purchase will help the buyer manage the growing cost and complexity of new semiconductor manufacturing processes.
Moreover, Pall acquired Filter Specialists Inc. (FSI, Financial), a worldwide supplier of filtration products and solutions based in Michigan City, Indiana. The company operates primarily in the industrial paint, chemical, petrochemical, oil and gas, and food and beverage markets.
Cost Structure
The company is focusing on improving the cost structure in emerging markets, such as Asia, expanding its outsourcing network in low-cost countries.
Further, it targeted $100 million in structural cost reductions over the next three years, and it saved $50 million during fiscal 2013 by reducing SG&A expenses along with other costs, which we think is great in terms of credibility. The firm expects to save another $50 million in the next couple of years.
Research and Development (R&D)
The biopharmaceutical business will be benefitted by R&D investments. This segment is going to grow significantly due to rising demand as well as the increasing number of drugs and vaccines getting approved over time.
Relative Valuation, EPS and Price Performance
In terms of valuation, the company sells at a trailing P/E of 29.x, trading at a discount compared to the industry mean.
| Ticker | Company | P/E |
| PLL | Pall Corporation | 29.1 |
| CIR | Circor International Inc | 25.2 |
| FLS | Flowserve Corp | 21 |
| LDL | Lydall Inc | 25.8 |
This ratio indicates that the stock is relatively overvalued when compared to competitors such as Circor International Inc. (CIR, Financial), Flowserve Corp. (FLS, Financial) and Lydall Inc. (LDL, Financial).
Earnings per share (EPS) have increased by 23.1% in the most recent quarter compared to the same (third-quarter 2014) to $0.8 per share. EPS demonstrated a pattern of positive growth over the past two years.
In the next graph we can see the stock price movement. As we can appreciate in the chart, the price performance in the last year showed an interesting upward trend.
Final Comment
According to Yahoo Finance, the estimated one-year target share price is $89.33, so if you buy shares at current market price ($85.5), your return from price appreciation would be 4.5%. In addition, you have to consider any cash flow received by the asset. So for holding the stock one year, you'll be paid a dividend of 27.5 cents per share each quarter, totalizing $1.1 at the end of the year. If we divide this number by current price per share, we obtain the dividend yield, which is the other component of the return on an investment for a stock, and in this case is 1.3%. So the total expected return for investing in Pall is 5.8%. According to this expected performance, a neutral recommendation would be appropriate. It means that if you own a security you still shouldn't sell, but you also should not buy the security if you don't own it already (or do not buy more of it if you do).
Despite the stated above and according to what we discussed in the article, I feel bullish on the stock that is around all-time highs.
Hedge fund gurus have also been active in the company in the first quarter of 2014. Gurus like Jeremy Grantham (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) have taken long positions on it in that time frame, while Paul Tudor Jones (Trades, Portfolio) and Jim Simons (Trades, Portfolio) have sold out the stock.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
