Rating Update: Stock Rating C-Neutral (3/20/20)-Minerals Technologies Inc. (MTX).

out_logo_500#21620.jpg

BUSINESS

Minerals Technologies Inc. develops, produces, and markets various specialty mineral, mineral-based, and synthetic mineral products, and supporting systems and services worldwide. The company’s Specialty Minerals segment produces and sells precipitated calcium carbonate and quicklime; and provides natural mineral products comprising limestone and talc. This segment’s products are used in paper, building materials, paint and coatings, glass, ceramic, polymer, food, automotive, and pharmaceutical industries. Its Performance Materials segment supplies bentonite and bentonite-related products, as well as chromite and leonardite. This segment offers metal casting products; household, personal care, and specialty products; and basic minerals, environmental products, and building materials.
out_plist#21620.jpg

INVESTMENT RATING

out_map1#21620.jpg

MTX’s future returns on capital are forecasted to be above the cost of capital. Accordingly, the company is expected to continue to be a Value Builder.

Minerals Tech has a current Value Trend Rating of C (Neutral).
This rating combines contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Minerals Tech has a good Appreciation Score of 73 but a slightly negative Power Rating of 35, producing the Neutral Value Trend Rating.

Minerals Tech’s stock is selling well below targeted value. The current stock price of $30.38 compares to targeted value 12 months forward of $81.
Minerals Tech’s high appreciation potential results in an appreciation score of 73 (only 27% of the universe has greater appreciation potential.)
out_pt#21620.jpg

Minerals Tech has a Power Rating of 35. (This slightly negative Power Rating indicates that MTX’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly negative Power Rating include: the trend in MTX’s earnings estimates has been unfavorable in recent months; is currently in an unfavorable positi; and recent price action has been neutral.

INVESTMENT PROFILE

MTX’s financial strength is average. Financial strength rating is 49.
out_pfit1#21620.jpg

Relative to the S&P 500 Composite, Minerals Technologies Inc. has moderate Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that MTX is higher risk. Relative weaknesses include: low forecasted profitability, low financial strength, and high stock price volatility. MTX’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. MTX has unusually low market capitalization.

CURRENT SIGNALS

Minerals Tech’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.

Minerals Tech’s current technical position is very weak. The stock price is in a 2.1 month down move. The stock has declined 32.6% from its prior high. The stock price is below its 200 day moving average which is in a downtrend. Minerals Tech’s stock price decline is extreme and the stock appears oversold.

ALERTS

Minerals Technologies Inc. (NYSE: MTX). Extremely significant negative changes in investment behavior have recently occurred: negative upside/downside volume developed, and the stock fell on very heavy volume.
The stock is currently rated C.
Minerals Technologies Inc. (NYSE: MTX) stock closed at $1.01 on 3/20/20 after a major decline of -10.8%. Moreover, exceptionally high trading volume at 237% of normal accompanied the decline. The stock has declined -6.4% during the last week and has performed in line with the market over the last nine months.

CASH FLOW

In 2019, Minerals Tech generated a significant increase in cash of +$30.6 million (+14%). Sources of cash were larger than uses. Cash generated from 2019 EBITDA totalled +$329.2 million. Non-operating uses consumed -$33.7 million (-10% of EBITDA). Cash taxes consumed -$39.0 million (-12% of EBITDA). Re-investment in the business amounted to -$62.8 million (-19% of EBITDA). On a net basis, debt investors received -$79.6 million (-24% of EBITDA) while equity investors pulled out -$83.5 million (-25% of EBITDA).
out_cflow.1#21620.jpg

Minerals Tech’s Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Minerals Technologies Inc. Peer Group. In most years, Minerals Tech was in the second quartile and third quartile. Currently, Minerals Tech is at the lower quartile at -10% of EBITDA (-$33.7 million).

Minerals Tech’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Minerals Technologies Inc. Peer Group. In most years, Minerals Tech was in the second quartile and top quartile. Currently, Minerals Tech is above median at -12% of EBITDA (-$39.0 million).

Minerals Tech’s Business Re-investment, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Minerals Technologies Inc. Peer Group. In most years, Minerals Tech was in the second quartile and top quartile. Currently, Minerals Tech is above median at -19% of EBITDA (-$62.8 million).

Minerals Tech’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Minerals Technologies Inc. Peer Group. In most years, Minerals Tech was in the second quartile and lower quartile. Currently, Minerals Tech is below median at -24% of EBITDA (-$79.6 million).

Minerals Tech’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Minerals Technologies Inc. Peer Group. (Since 2017 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Minerals Tech was in the third quartile and second quartile. Currently, Minerals Tech is substantially below median at -25% of EBITDA (-$83.5 million).

Minerals Tech’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Minerals Technologies Inc. Peer Group. In most years, Minerals Tech was in the top quartile and second quartile. Currently, Minerals Tech is at the upper quartile at +9% of EBITDA (+$30.6 million).
out_cflow.2#21620.jpg

Minerals Tech’s Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by stability for the Minerals Technologies Inc. Peer Group. (Since 2016 Cash, %Revenue has recently stabilized.) In most years, Minerals Tech was in the top quartile and second quartile. Currently, Minerals Tech is at median at +14%.

PROFITABILITY

MTX’s return on equity has improved modestly since 2010 even as it experienced a very sharp decline after the 2017 high.
The key to the story for MTX is a very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors.
The productivity of MTX’s assets declined over the full period 2010-2019: asset turnover has suffered a very strong overall downtrend but it experienced a small recovery after the 2014 low.
Additionally, pretax margin has exhibited little to no overall change even as it experienced a very sharp decline from the 2017 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
out_dpgrfs3#21620.jpg

MTX’s return on equity is below median (9.5%) for the four quarters ended December, 2019.
out_dpgrfs3.2#21620.jpg
Operating performance (pretax return on assets) is at the lower quartile (5.1%) reflecting asset turnover that is below median (0.58X) and slightly below median pretax margin (8.9%).
Tax “keep” rate (income tax management) is upper quartile (83.4%) resulting in after tax return on assets that is substantially below median.
Financial leverage (leverage) is at the lower quartile (2.22X).

GROWTH RATES

There are no significant differences between Minerals Technologies’ longer term growth and growth in recent years.
Minerals Technologies’ historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has paralleled equity growth.

Annual revenue growth has been 1.6% per year. (More recently it has been 6.8%.)

Total asset growth has been 7.1% per year. (More recently it has been 11.3%.)

Annual E.P.S. growth has been 5.0% per year. (More recently it has been -9.7%.)

Equity growth has been 2.0% per year. (More recently it has been 8.6%.)

Minerals Technologies’ consensus growth rate forecast (average of Wall Street analysts) is 7.8% — above the average of the historical growth measures.
out_growthgrf#21620.jpg

Relative to the Minerals Technologies Inc. Peer Group, Minerals Tech’s historical growth measures are generally lower quartile. Total asset growth (7.1%) has been below median. Revenue growth (1.6%) has been lower quartile. E.P.S. growth (5.0%) has been lower quartile. Equity growth (2.0%) has been lower quartile.

Consistent with this pattern, consensus growth forecast (7.8%) is also lower quartile.
out_growthgrf.2#21620.jpg

PRICE HISTORY

Over the full time period, Minerals Technologies’ stock price performance has been variable and below market. Between May, 2009 and March, 2020, Minerals Technologies’ stock price rose +55%; relative to the market, this was a -38% loss. Significant price moves during the period: 1) April, 2019 – March, 2020: -52%; and 2) September, 2011 – October, 2014: +211%.
out_price#21620.jpg

TOTAL INVESTMENT RETURNS

Current annual total return performance of -23.9% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2020 of -23.9% is lower quartile relative to Minerals Technologies Inc. Peer Group.

Current 5-year total return performance of -9.0% is lower quartile relative to the S&P 500 Composite.
Through February, 2020, with lower quartile current 5-year total return of -9.0% relative to S&P 500 Composite, Minerals Tech’s total return performance is lower quartile relative to Minerals Technologies Inc. Peer Group.
out_quartret#21620.jpg

VALUATION BENCHMARKS

Relative to S&P 500 Composite, MTX’s overall valuation is exceptionally low. All five factors are upper quartile. The highest factor is the ratio of enterprise value/earnings before interest and taxes, followed by the ratio of enterprise value/assets, then by the price/earnings ratio, then by the ratio of enterprise value/revenue. The lowest factor is the price/equity ratio.

Relative to Minerals Technologies Inc. Peer Group, MTX’s overall valuation is low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is at the lower quartile. Price/earnings ratio is at the lower quartile. Ratio of enterprise value/revenue is below median. Ratio of enterprise value/assets is at the lower quartile. The lowest factor, the price/equity ratio, is near the lower quartile.
out_tradv#21620.jpg

Minerals Tech has a major value gap compared to the median valuation. For MTX to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.00X to 1.37X. If MTX’s ratio of enterprise value/revenue were to rise to 1.37X, its stock price would be lower by $19 to $50.
For MTX to hit lower quartile valuation relative to the Minerals Technologies Inc. Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.00X to 0.74X. If MTX’s ratio of enterprise value/revenue were to fall to 0.74X, its stock price would decline by $-13 from the current level of $30.

VALUE TARGETS

MTX’s future returns on capital are forecasted to be above the cost of capital. Accordingly, the company is expected to continue to be a Value Builder.
Minerals Technologies’ current Price Target of $86 represents a +185% change from the current price of $30.38.
This high appreciation potential results in an appreciation score of 73 (only 27% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 73, the moderately low Power Rating of 35 results in an Value Trend Rating of C.
out_vc#21620.jpg

Minerals Technologies’ current Price Target is $86 (+13% from the 2019 Target of $77 and +185% from the 03/20/20 price of $30.38). This slight rise in the Target is the result of a +4% increase in the equity base and a +8% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a large positive impact on the price/equity multiple. The forecasted flat growth has no impact. The forecasted increase in cost of equity has a slight negative impact.
out_wc.1#21620.jpg
out_wc.2#21620.jpg

PTR’s return on equity forecast is 11.4% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2011 and 2019. The current forecast is well above the 2011 low of 5%.

PTR’s growth forecast is 5.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2011 and 2019. The current forecast is well above the 2013 low of -1%.

PTR’s cost of equity forecast is 7.5% — in line with recent levels. Forecasted cost of equity suffered a dramatic, variable increase between 2011 and 2019. The current forecast is above the 2011 low of 4.8%.
out_vc.2#21620.jpg
At Minerals Technologies’ current price of $30.38, investors are placing a negative value of $-31 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 5.0% per year, and a return on equity of 10.6% versus a cost of equity of 7.3%.
PTR’s 2021 Price Target of $86 is based on these forecasts and reflects an estimated value of existing assets of $48 and a value of future investments of $39.

About John Lafferty 69736 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

Be the first to comment

Leave a Reply

Your email address will not be published.


*


This site uses Akismet to reduce spam. Learn how your comment data is processed.