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I purchased shares in IHS on Thursday, March 22, 2007, and I wrote it up here on the blog. I promised you that I would write up a few things about this stock, which actually has traded a bit lower since I purchased shares at $44.07. (IHS closed at $42.10 on 3/23/07) so thus far it hasn't been a knock-out purchase, but I still like the numbers and want to review the company for all of you readers here on Stock Picks!
First of all,
What exactly does this company do?
According to the Yahoo "Profile" on IHS, the company
"...provides technical information, decision-support tools, and related services to customers in the energy, defense, aerospace, construction, electronics, and automotive industries worldwide. It operates in two segments: Energy and Engineering. The Energy segment develops and delivers oil and gas industry data on exploration, development, production, and transportation activities to energy producers and oil companies. It also provides decision-support tools and operational, research, and strategic advisory services to these customers, as well as to utilities and transportation, petrochemical, coal, and power companies. The Engineering segment provides solutions, such as technical specifications and standards, regulations, parts data, design guides, and other information to customers in its targeted industries. This segment serves defense, aerospace, construction, energy, electronics, and automotive industries."
How did they do in the latest quarter?
It was the announcement of 1st quarter 2007 results after the close of trading on Wednesday, March 21, 2007, that drove the stock higher on Thursday. Revenue for the quarter ended February 28, 2007, came in at $152.6 million, up 18% over the first quarter 2006 revenue figure of $129.9 million. Net income for the quarter increased 36% to $18.4 million or $.32/diluted share, up from $13.5 million or $.24/diluted share in the same quarter last year.
In addition, the company raised guidance:
"IHS revises guidance upwards to revenue growth in the range of 11 to 13 percent and adjusted EBITDA growth in the range of 18 to 22 percent for the full year ending November 30, 2007."
The adjusted earnings per share of $.38 beat analyst expectations of $.35/share and the revenue of $152.6 million also beat expectations of $148 million in revenue.
From my perspective, this was a very strong earnings report with strong revenue and earnings growth, beating of expectations, and the raising of guidance. However, the stock price was hit on Friday, apparently from a non-event (imho) of a shareholder filing to sell 3.8 million shares in a public offering. At this time, the market seems to have absorbed this news and the stock is trading fractionally higher in after-hour quotes.
How about longer-term financial results?
If we review the Morningstar.com "5-Yr Restated" financials on IHS, we find that the company has steadily been increasing revenue from $339 million in 2002 to $551 million in 2006. Earnings were $.99/share in 2006 and from the latest report are continuing to show strong growth. (There are limited figures available on Morningstar) IHS has a long history, but as noted in the history, underwent an initial public offering on the NYSE on November 11, 2005.
The company reported 56 million shares in 2006 and 59 million in the trailing twelve months (TTM). The company reported $63 million in free cash flow in 2004, $43 million in 2005 and $105 million in 2006.
The balance sheet appears solid with $182.1 million in cash and $198.8 million in other current assets. This total of $380.9 million, when compared with the $338.5 million in current liabilities yields a current ratio of 1.125. While not as strong as many of the company reviewed here, this current ratio does not reflect the very low level of long-term debt totaling $40.6 million and the nice free cash flow.
What about some valuation numbers?
Looking at the Yahoo "Key Statistics" on IHS, we find that the company is a mid cap stock with a market capitalization of $2.47 billion. The trailing p/e is a bit rich at 42.31, with a forward p/e (fye 30-November-08) estimated at 24.91. The company is growing rapidly enough that the PEG (5 yr expected) is estimnated at 1.70. While preferring a value of 1.0 to 1.5, this isn't too far out of line for me.
Checking the Fidelity.com eresearch website, we find that the Price/Sales TTM ratio is indeed a bit steep at 4.32 compared to an industry average of 2.39. The company is also a bit richly priced in terms of profitability, with a Return on Equity (ROE) (TTM) of 11.15%, compared to an industry average of 14.11%.
Returning to Yahoo, we find that there are 58.79 million shares outstanding with only 23.43 million that float. As of 2/12/07, there were 834,300 shares out short representing 2.50% of the float or 4 trading days of volume (the short ratio). While more than my own 3 day rule for significance, this doesn't appear to be a big factor in the recent stock price rise.
No dividends are paid and no stock splits are reported on Yahoo.
What does the chart look like?
If we look at the "Point & Figure" chart on IHS from StockCharts.com, we can see that the stock has moved steadily higher since first trading at $17 in late 2005, when it came public. The chart simply looks strong to me and does not appear to evidence any particular weakness.
Summary: What do I think?
Well, I liked this stock enough to buy some shares :). Seriously, with the big move in Bolt (BTJ), I do believe I was biased enough to pick this engineering firm with ties to the energy business. Their latest quarter was great with solid revenue growth and earnings growth that beat expectations, and raising of guidance into the upcoming year. That is often enough to propel a stock higher. Meanwhile I am down a bit on the purchase, but the company is still interesting. However, valuation is a bit rich and the balance sheet, while solid, could be stronger with more current assets vs. the current liabilities. The rest looks nice.
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Have a great weekend everyone!