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I write a lot about my "vocabulary" of stocks. What I mean by this word vocabulary is one investment among many that more or less fit my investing strategy. Sauer Danfoss (SHS) is a great company that I first wrote up on September 30, 2004, when it was trading at $17.08/share. SHS made the list of top % gainers on the NYSE today, closing at $37.37, up $1.43 or 3.98% on the day. This represents a gain of 118.8% since posting on the blog. I still believe the company deserves a spot here and I shall review a few of the things that makes me so impressed with this particular company. I do not own any shares or options on this stock.
What exactly does this company do?
According to the Yahoo "Profile" on Sauer-Danfoss, the company
"...and its subsidiaries engage in the development, manufacture, and marketing of engineered hydraulic and electronic systems, and components for the distribution and control of power in mobile equipment principally in the America, Europe, and the Asia-Pacific regions. It operates in three segments: Propel, Work Function, and Controls."
How did they do in the latest quarter?
On November 1, 2006, SHS reported 3rd quarter 2006 results. Net sales for the quarter ended September 30, 2006, climbed 12% to $381.9 million, from $342.0 million during the same period last year. (Excluding the effect of currency exchange rates on the results, sales still climbed 9% year-over-year). Net income increased 65% to $7.1 million or $.15/share, from $4.3 million or $.09/share the prior year.
What about longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" financials on Sauer-Danfoss, we can see the steady revenue growth from $855 million in 2001 to $1.55 billion in 2005 and $1.68 billion in the trailing twelve months (TTM).
Except for a slight dip from 2002's $.29/share to $.24/share in 2003, earnings have subsequently steadily increased to $.81/share in 2005 and $1.24/share in the TTM.
The company pays a dividend which while stable aqt $.28/share between 2001 and 2003, increased to $.34/share in 2004, $.48/share in 2005 and $.56/share in 2006. Meanwhile, shares outstanding have been absolutely solid with 48 million in 2001, and 48 million in the TTM.
Free cash flow, while a bit erratic, appears to be increasing recently. $36 million in 2003 reported increasing to $46 million in 2004, dipping to $21 million in 2005, then increasing to $73 million in the TTM.
The balance sheet appears solid with $24.9 million in cash and $555.3 million in other current assets. This total of $580.2 million in current assets, easily covers the $366.5 million in current liabilities, yielding a 'current ratio' of 1.58. In addition, Morningstar reports an additional $398.1 million in long-term liabilities.
What about some valuation numbers?
Checking the Yahoo "Key Statistics" on Sauer-Danfoss, we find that this is a mid cap stock with a market capitalizatio of $1.78 billion. The trailing p/e is a bit rich at 30.02, however the forward p/e (fye 31-Dec-07) is a bit nicer at 25.77 estimated. However, the PEG is also a bit rich estimated (5 yr expected) at 2.00.
Using the Fidelity.com eresearch website for information, we find that the Price/Sales (TTM) is quite reasonable at 1.02 with an industry average of 8.84 reported. Also, the return on equity (ROE) (TTM) is at 12.72%, with an industry average of (63.11)% reported by Fidelity. Again, relative to sales as well as relative to the profitability, SHS appears to be priced reasonably.
Finishing up with Yahoo, we can see that there are 47.75 million shares outstanding with only 10.63 million that float. As of 1/9/07, there were 492,040 shares out short, representing 6.8 trading days of volume or 1% of the float. This is significant in light of the average trading volume the past 10 days of 108,886. Any time the short ratio (the number of days the short interest would take to be 'covered') exceeds 3, that is significant imho.
Finally, the company pays a 'forward' dividend of $.64/share yielding 1.9%. No stock splits are reported.
What does the chart look like?
If we examine a "Point & Figure" chart on Sauer-Danfoss from StockCharts.com, we can see a very strong picture of price appreciation. After dropping from $12.00/share to a low of $7.00 in October, 2002, the stock has been on a tear. It spent much of its time in 2005 consolidating between $23 and $16, but then in March, 2006, the stock broke out once again to the upside and is charging higher as I write :). The stock is a tad over-extended at this point, but it is a very strong chart imho.
Summary: What do I think about this stock?
In three words, "I like it!" Let's review a few of the things about this that I have already discussed that makes me 'pick' a stock like Sauer-Danfoss for this blog. First of all, this is a stock that I wrote up more than two years ago and which has more than doubled since that time! I do not own any shares or options unfortunately. The latest quarter was great with solid growth in revenue and earnings. The only note on that report was a bit of caution regarding the slight slowing of the growth in the backlog. Otherwise, everything else looked solid.
Longer-term, the company has steadily grown the revenue, almost perfectly grown earnings, has started growing its dividend, and has kept the number of shares outstanding steady. They are growing the free cash flow and the balance sheet appears solid.
Valuation-wise, the p/e is a tad rich, the PEG is at 2.0 which is a bit higher than I like (1.0 to 1.5 is perfect). However, the Price/Sales was quite cheap for its group, and the profitability, as measured by ROE was higher than other stocks in its group as well. Finally there are a significant number of shares out short, waiting to be 'squeezed' so to speak, and the chart looks strong to me!
This is avery interesting company that meets many of the criteria that I look for in a stock! I liked it two years ago, it doubled in price, and I still like it today!
Thanks so much for stopping by and visiting. If you have any comments or questions, please feel free to leave them on the blog or email me at firstname.lastname@example.org. If you get a chance, stop by and visit my Stock Picks Podcast website, where I discuss many of the same stocks that I write about here on the Stock Picks blog!