Tredegar Corporation (TG): This Stock Has Huge Upside Potential

Griffon Corporation (NYSE:GFF) has a bit higher valuation than AEP Industries (NASDAQ:AEPI). It is trading at around $11 per share with a total market cap of $597 million. The market values Griffon Corporation (NYSE:GFF) at around 8.12 times EV/EBITDA. Griffon currently has three main businesses: Telephonics, Home & Building Products, and Clopay Plastic Products Company. Most of its adjusted EBITDA, $72 million, or 40% of the total adjusted EBITDA, was derived from Home & Building Products, while Clopay Plastic Products and Telephonics generated $44 million and $61 million, respectively, in adjusted EBITDA.

Looking forward, the overall improvement in the economy and the housing market would drive Griffon Corporation (NYSE:GFF)’s Home & Building Products. The Clopay Plastic Products segment would be driven by the increasing demand in Latin American and Asian markets while Telephonics would witness rising global demand for ISR products, offsetting the shift in the Department of Defense budget. Consequently, the margin of the Telephonics segment is expected to be strong.

Among the three, Tredegar pays the highest dividend yield of 1.10%. Griffon ranked second with a 0.90% dividend yield while AEP Industries (NASDAQ:AEPI) has not paid any dividend yet. However, Griffon Corporation (NYSE:GFF)’s payout ratio was only 43% while Tredegar Corporation (NYSE:TG) pays dividends more than earns during the year with a payout ratio of 107%.

My Foolish take

Tredegar could be a nice acquisition target with its conservative capital structure and a reasonable valuation. If its EBITDA could increase to $132 million in 2015, a simple EV multiple of 8 would value Tredegar Corporation (NYSE:TG) at more than $1 billion, which is almost a 30% premium to its current trading price. I also like Griffon Corporation (NYSE:GFF) with its much more conservative dividend payout ratio and lower valuation.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article This Stock Has Huge Upside Potential originally appeared on Fool.com.

Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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