RPM International Stock Analysis

Company Overview

RPM International (NYSE: RPM) is a multi-national holding company with subsidiaries that manufacture and market high-performance coatings, sealants and specialty chemicals, primarily for maintenance and improvement. 

RPM employs 9,700 people worldwide, and has 92 manufacturing facilities in 22 countries.  Out of the 122 countries that RPM markets products to, 33% of sales are from North America, and 67% are from the rest of the world. 

RPM is not a monolith, but a mosaic - of products, services, technologies, companies and people.  The company uses the smaller operating units of each brand to stay flexible and more responsive to customer needs.  If you’ve ever visited a Lowes or Home Depot, you are familiar with their portfolio of brands, including consumer brands Rust-Oleum, DAP, and Varathane.  The currently own 8 brands that are #1 in their respective markets. 

Financial Analysis

Dividends

Dividend Growth	CAGR
10 year	5.65%
5 year	6.81%
1 year	3.80%

Payout Ratios	2009	10 yr Avg.
EPS	59%	91%
Cash	57.96%	76.30%

RPM has increased its dividend every year for 36 consecutive years. 

Income Statement

Revenue Growth	CAGR	EPS Growth	CAGR
10 year	6.01%	10 year	9.29%
5 year	3.20%	5 year	P
1 year	1.32%	1 year	49.46%

Margins	10 yr Avg.
Gross	42.99%
Net	4.05%

In this time period outstanding shares have increased by an average of 5.73% annually

Balance Sheet

Balance Sheet Ratios	2009	10 yr Avg.
Current Ratio	2.29	2.08
Lg T Debt / Equity	0.80	0.88
Tot Debt / Equity	0.80	0.91
Debt / Total Capital	44.43%	47.21%
Cash Return / Tot Capital	8.65%	6.93%

Cash Flow

Free Cash Flow	CAGR	FCF Per Share	CAGR
10 year	27.13%	10 year	24.05%
5 year	9.80%	5 year	7.38%
1year	-14.77%	1 year	-14.80%

There have been no years in the previous decade with negative free cash flow

Stock Price

Current Price	20.09
P/E	14.45
Est. Forward P/E	13.86
Div Yield	4.08%
Intrinsic Value	35.25
Net Present Value	19.95

	High P/E	Low P/E	High Yield	Low Yield
10 year avg.	22.30	13.27	5.69%	3.35%
5 year avg.	18.45	10.02	5.84%	3.31%

Competitors

PPG Industries (PPG) trades at a p/e of 20.95 and a yield of 2.88%

Valspar (VAL) trades at a p/e of 14.46 and a yield of 2%

Conclusion

As I analyze RPM International, I come away with lukewarm feelings at best.  I find a few parts of the company attractive

·      International exposure with multiple revenue streams, many operating with substantial independence

·      8 products with #1 market position

·      36 years of consecutive dividend increases

There are however more parts of the company I find unattractive

·      Low dividend growth rate coupled with a few years of  >100% payout ratios

·      Low net profit margin

·      High debt, with low cash return on capital employed

·      Decreasing dividend and revenue growth

·      Increase in outstanding shares

·      Large liabilities relating to asbestos charges, culminating in subsidiary Bondex, and parent holding company SPHC, filing for Chapter 11 in Delaware on May 31, 2010 

·      Current price

I have no plans to invest in RPM International at the moment.  To do so, I would like to see debt decrease, a halt to issuing new shares, and a better price.

I admit on the surface the p/e and yield look attractive.  But if we look a little closer, the p/e is above its average lows, and the yield is lower than its average highs. 

In 2009 this stock traded at $9.09 a share, with a p/e of 6.54 and a yield of 9.02%.  If I had found it then, I might have initiated a position.

Full Disclosure:  I do not own any position in RPM International