The Razor’s Edge
2-Year Price History
Recent Price
(2/13/2009)
$59.47
52-Week Price
$44.13 – $86.41
Market Capitalization
$11.6 Billion
Most Recent Dividend
$1.60
About Rohm and Haas Company
Rohm and Haas Company is considered to operate in the Basic Materials
sector. They specifically operate in the Chemicals-Major Diversified
business segment contained within the Chemicals industry.
A global materials company that leverages science and technology in many different forms to design materials and processes that enable the products of its customers to work.
Ockham’s Rating
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ROH Revenue
As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, ROH the high and low end of the Price to Sales per share ratios are 0.99x and 0.67x respectively.
Notice that ROH’s current Price to Sales per share ratio is 1.10x, which is high enough compared with historical norms of ROH to cause some concern. The current Price to Sales per share is near the upper end of the historical range. In our eyes, this is a negative factor because it is more likely that it will return to the normal range than continue rising outside of the range. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 33% merely to return ROH to its historical average.
ROH Cash Earnings
Looking at ROH specifically in their Cash Earnings capabilities, Ockham views ROH as significantly above its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from ROH. For example, ROH’s Cash Earnings ratio per share has fluctuated between 4.76 and 6.98 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where ROH is with respect to prior business periods.
So what does this tell us about ROH in particular? Basically, we would value the current level of Cash Earnings per share (which is at 7.88) as significantly overvalued. Just by looking at the last closing price of ROH, which was $59.47, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded ROH with a higher stock price. So basically, we don’t view this level of Cash Earnings or stock price as compatible with a long term value at this point. Just remember, that does not mean that ROH may not have other merits with which to find a good investment opportunity, it just means that we would prefer to see either an increase in Cash Earnings or a decrease in stock price before we would become bullish on this metric.
ROH Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company’s inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from ROH against the historic high and low levels over an available data range. Because ROH has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In ROH’s case, the estimated annual dividend is $1.64 producing a current dividend yield of 2.76%. The highest dividend yield from ROH in recent history was 3.72% while the lowest dividend yield was 1.58%. A current dividend yield of 4.15% above the historical median is favorable in our analysis of ROH.
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