Why Mercer International Inc. is an Undervalued Gem (NYSE: MERC) By Tyler R. Martin Today I’ll be writing about one of my favorite companies: Mercer International Inc. (MERC), and will be presenting a buy and hold case for this company regardless of your investment principles, personal values or financial goals. In future posts, I likely will not find another company (or find very, very few) who I’d recommend to the income seeking retiree, the young aspiring investor and every investor in between. To begin, Mercer International Inc. (MERC), is a very small company with a market cap of about 900 Million, however, its fundamentals are that of a company easily worth billions, indicating that’s minuscule market presence is due solely to the fact that too few investors are privy to its existence. Additionally, MERC has several entrenched, solidly producing irons in the fire. Primarily operating in the lumber industry, MERC produces softwood pulp for various grades of bleached paper and tissue products. To do this, MERC owns various sawmills in Europe and the Americas. Through the utilization of the natural black liquor and wood-waste byproducts of these sawmills, Mercer International Inc. (MERC) produces carbon neutral green energy at a net positive energy output. This means that the energy it produces has been more than sustaining its day to day operations and the excess is sold at a profit. This carbon neutral energy structure, along with its operation of numerous railway systems in Europe (considered a “green” mode of transport), demonstrate not only MERC’s commitment to planet friendly business (an important factor in today’s political environment) but also a commitment to keeping costs in check through internal self-sufficiency. So now some stats: Mercer International Inc. (MERC) is currently a bargain, valued at 13.35 dollars per share at the time of this writing, which puts it at ~9.21 dollars below the 52 week high. This company boasts a p/e ratio of ~7x earnings while the average p/e of the paper goods sector is ~10x earnings–(a low p/e ratio relative to peers is a very simple but effective measurement of the intrinsic value of a company). It has a current ratio of 2.60x which indicates MERC has a large stockpile of cash on hand to pay/raise dividends, pay down debt and jump on acquisitions that are potentially undervalued. MERC’s Return on Equity (ROE), which essentially measures how effectively a management team will utilize its assets to create profits, is ~23%, with the industry average hovering around 15%. MERC’s dividend is a robust and growing 3.70% with with a 23% payout ratio and a three year growth rate standing at a very healthy 30%. And last but not least, earnings per share (EPS) and revenue growth over the last 12 months has been has been solid and consistently growing with both standing at ~26%. Analysis Considering the fundamentals of Mercer International Inc. (MERC), the currently discounted price, the growing dividend and the unique and intrinsically solid business structure of this unique and intrinsically solid industry, MERC is a must have for any value investors portfolio.
Full disclosure I personally own shares of MERC and plan to continue accumulating shares