Technology filtration company Polypore (PPO) issued updated downside guidance, which was greeted with a very mixed reaction, falling over 13% initially, then ending the day of the announcement up 2%. The firm expects third quarter earnings per share in the low-to-mid $0.30 range, meaningfully lower than the consensus estimate calling for $0.49 per share. Fourth-quarter earnings per share will be in the low $0.50 to low $0.60 range, the upper end of the range a tad below the consensus of $0.61.
The profit reduction isn't much of a surprise given General Motors' (GM) decision to idle production of the Chevrolet Volt, which runs on a Polypore lithium ion battery. Though the firm remains confident in the long-term future of lithium ion batteries propelling electric drive vehicles (EDVs), we're not so sure. Given the current technology, EDVs are not incredibly efficient. We've previously mentioned that the Volt has an odd position of not being practical for suburban or even city vehicle owners. Additionally, with traditional combustion engine fuel-efficiency improving rapidly, we do not see the cost of EDV ownership providing consumers with a better value than traditional vehicles.
Nevertheless, we remain optimistic about the firm's other business lines, which include consumer electronics, water filtration, healthcare, and separators in traditional lead-acid batteries. Though we aren't huge fans of the EDV business, we suspect Polypore will retain its market position and benefit from the continued cyclical improvement in auto sales. Regardless, shares score just a 3 on the Valuentum Buying Index (our stock-selection methodology); thus, we aren't interested in adding shares to the portfolio of our Best Ideas Newsletter.