Valuation Scorecard: Stock Rating B-Positive (5/6/24)-Mercer International Inc (MERC).

At the current price of $11, what is the market’s view of Mercer International’s future operating performance? To achieve average annual stock market performance of 9.0% over the next 6 years, Mercer International shares will need to reach $18. To achieve Upper quartile performance, Mercer International’s stock price will need to reach $21 by 2029.

Executive Summary

• Key Mercer International characteristics: instability, below average expected growth, below average financial strength, and very low profitability. A big positive influence on Mercer International’s valuation is its superior Growth.
• Average valuation, average shareholder returns. Current valuation levels are average relative to the Mercer International Peer Group. Recent market returns have tracked the Mercer International Peer Group. Total shareholder returns expected to equal the overall equity market. Based on current investor expectations, Mercer International shares should reach a level of $16 by 2029 — an 9.3% per year total shareholder return. A 2029 stock price of $18 would reflect median performance and a price of $21 would be required to reach upper quartile performance.
• Growth has been Mercer International’s biggest valuation strength. Historical growth has been high relative to the Mercer International Peer Group and forecasted growth is relatively below average. EPS Growth, Revenue Growth, and Asset Growth have been superior. Equity Growth has lagged. Mercer International’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity.
• Pretax Margin, Pretax ROA, Return on Equity, and Asset Turnover are all group lagging. These factors have negatively affected market perceptions of Mercer International. The company has very low cash and will have to work to generate attractive investments and improve valuation.
• Mercer International’s risk profile is favorable. Overall variability has been above average with above average revenue variability, only average E.P.S. variability, and above average stock price volatility. Financial Strength is below average and earnings’ expectations are relatively very high. The debt/capital ratio has risen very significantly.

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