Seeking Alpha: RPM Redlining On Value

Specialty chemical company RPM International (RPM) is a curious company for GARP investors. The company has a strong record of sales and free cash flow, but the company's book value growth and returns on invested capital have not been so remarkable. RPM also has a strong collection of brands and a good history of adding value to its acquisitions, but valuations have been marching higher for a few years while most value-creation metrics haven't kept pace.

I might not rush to sell RPM International if I owned shares today, but buying it at these prices is another story. I do believe that the company can leverage a recovering residential remodeling/repair market as well as growth in infrastructure spending and international markets, but it's very hard to find a metric whereby these shares look like a bargain for value-oriented investors.

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RPM Redlining On Value

Investopedia: Waiting For Housing To Recover, Valspar's Recovery Already Arrived

Data on the residential housing market has been getting better. Prices and sales activity have both improved, and data from the major big-box home improvement stores Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) suggests that homeowners and contractors are back at work fixing up properties.

While the aforementioned data has been incremental, many housing-related stocks have already posted strong runs. One of them, paint and coatings manufacturer Valspar (NYSE:VAL) is already up 75% over the last two years and about 46% over the past year. While declining TiO2 prices and improving demand should both help results, as will a growing presence in emerging markets, the stock seems to already be testing the high end of its typical valuation range.

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Investopedia: RPM's Performance Isn't Perfect, But Continues To Generate Cash Flow

Specialty chemicals is a tough sector, and just about anything tied to construction (particularly commercial construction) is even worse. And yet, while RPM International (NYSE:RPM) has seen plenty of ups and downs over the years, the company's growth-by-acquisition strategy has continued to generate solid cash flow and decent returns on capital. While I still don't see these shares as a bargain today, an ongoing revival in the residential market does seem to be tiding the company over until commercial construction improves.

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Investopedia: Can RPM Play Catch Up On The Housing Trade?

2012 was a pretty good year for investors prescient (or aggressive) enough to get in early to housing-sensitive names such as Louisiana-Pacific (NYSE:LPX), Mohawk (NYSE:MHK) and Valspar (NYSE:VAL). While housing hasn't really recovered just yet, investors seem happy enough with signs of a real bottom and the improving sales at the home improvement warehouse chains. Curiously, however, despite a meaningful exposure to these markets RPM International (NYSE:RPM) hasn't shared in all of the enthusiasm. Now the question is whether it should, and whether that catch-up trade can fuel further gains in the shares.

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http://www.investopedia.com/stock-analysis/2013/Can-RPM-Play-Catch-Up-On-The-Housing-Trade-RPM-VAL-PPG-MHK0109.aspx

Investopedia: RPM Seeing The Benefit Of The Recovery

It's quite common to see the market reward companies for recoveries even before the evidence is all in hand. Although RPM International (NYSE:RPM) shares haven't been as strong as those of Fuller HB (NYSE:FUL), Sherwin Williams (NYSE:SHW), or Valspar (NYSE:VAL) over the past year, investors have nevertheless pushed up these shares over the past six months. Ongoing recoveries in the consumer and industrial markets could certainly drive the shares even further, but investors should realize that they're no longer looking at a markedly cheap stock.

Surprisingly Strong Third Quarter Results
RPM certainly helped its case with strong fiscal third quarter results. Revenue rose more than 15% as reported and nearly 11% on an organic basis, and handily surpassed the sell-side estimates. Interestingly, revenue was strong across both businesses; industrial saw a 12% revenue improvement on 7% volume growth, while consumer revenue rose more than 18%.

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Investopedia: Costs Taking Their Toll On RPM International

Much is made of the weak construction markets in North America and Western Europe when talking about specialty chemicals maker RPM International (NYSE:RPM), but that's only part of the story - and maybe not even the most important part. Although strong revenue growth is a goal of most companies, RPM arguably has a more clear and present danger in the form of rising input costs and limited pricing power. Although RPM is a fine company in many respects, valuation still doesn't point to this name as a must-own.

A Fair Fiscal Second Quarter  
RPM International's second quarter was alright, but with a few worrisome trends. Reported revenue did rise almost 11%, with about one-quarter of that growth coming from acquisitions. The industrial segment is still more than two-thirds of sales and revenue growth was a bit light here - up about 10% as reported, but about 40% of that growth was acquisition-related. Volume rose a bit more than 3%, with prices up about a similar amount. Consumer sales were stronger - up more than 12% on a better than 9% rise in volume. (For related reading on acquisitions, see Biggest Merger and Acquisition Disasters.)

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http://stocks.investopedia.com/stock-analysis/2012/Costs-Taking-Their-Toll-On-RPM-International-RPM-DD-PPG-HD0109.aspx

Investopedia: RPM Still Rolling Ahead

The construction industry is still in lousy shape, whether an investor looks at the residential or commercial segments. That makes RPM International's (NYSE:RPM) performance all the more interesting; although volume is not strong, it is positive and the company seems to be holding its own despite no real tailwinds to help it along.

Beginning the Fiscal Year on a Good Note  
RPM managed to get off to a good start for the fiscal year. Revenue rose more than 10% and the company surpassed the high end of the analyst estimate range. Top-line performance was balanced in terms of growth; the consumer business saw sales up 9% while industrial revenue rose almost 11%.

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http://stocks.investopedia.com/stock-analysis/2011/RPM-Still-Rolling-Ahead-RPM-SHW-VAL-LOW-KRA-AKOZY-PPG1005.aspx

Investopedia: Lowe's Still Seeing Only Slow Progress

Investors don't need to wait until Lowe's (NYSE:LOW) or Home Depot (NYSE:HD) report earnings to know that the housing and big-ticket consumer spending environments are tough. The news is still full of stories about the high rate of foreclosures, the low rates of housing starts and the ongoing discrepancy between the recovery that large corporations are seeing and the recovery that individual consumers are experiencing.


A Tough, Disappointing Start to the Year
Lowe's started the fiscal year by missing on both its top and bottom line numbers. Revenue dropped 1.6% this quarter, coming in about 3% lower than analysts expected and below even the lowest published estimate. Poor top line performance was fueled by disappointing comps - down 3.3% from last year's level. While weather certainly played a role, weather is a convenient excuse for retailers; funny how weather never seems to keep shoppers from places like Lululemon Athletica (Nasdaq:LULU).


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http://stocks.investopedia.com/stock-analysis/2011/Lowes-Still-Seeing-Only-Slow-Progress-LOW-HD-TTC-WHR-SHW-MAS-FO0518.aspx

Industrial-Strength Performance At RPM

Specialty chemicals is one of those catch-all categories that seems convenient but is actually pretty worthless in practice. Cytec (NYSE:CYT), WR Grace (NYSE:GRA), Solutia (NYSE:SOA) and RPM International (NYSE:RPM) all carry this label, but the similarities are few and far between apart from a general exposure to rising input costs. Nevertheless, looking a little deeper sometimes pays off, for while RPM needs a better housing market to really do well, the stock could be an attractive dividend-plus-capital-gains story for patient investors. 

The Quarter That Was
RPM's fiscal first quarter results require a little bit of explanation. As reported, sales were down about 2%, but this is a case where "as reported" is not very accurate. The company elected to deconsolidate its Specialty Products Holding Company subsidiary and allow it to go into bankruptcy to help resolve asbestos liabilities. Not only does that take away some units like Day-Glo and Dryvit, but it also makes historical comparisons misleading. 


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http://stocks.investopedia.com/stock-analysis/2010/Industrial-Strength-Performance-At-RPM-RPM-KRA-SHW-FOE-CYT-SOA-GRA1008.aspx