Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice! As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.
Earlier today I posted about my purchase of shares of AZZ (AZZ). This company made the list of top % gainers on the NYSE today, closing at $47.7, up $1.86 or 4.05% on the day. As I just noted, I do own shares in AZZ, shares that were purchased today. So please take that into consideration when reading what I am writing. AZZ is not a perfect fit for this blog, nor is it a perfect fit for my portfolio. But it appears to meet many of the things I look for in a stock and with the strong trading momentum, I chose to purchase shares. We shall find out how that trade works out as time goes by. Meanwhile, let's take a closer look at this company and I will share with you some of the things that led me to take a position in this stock when the opportunity arose.
What exactly does this company do?
According to the Yahoo "Profile" on AZZ, the company
"...manufactures electrical equipment and components for power generation, transmission, and distribution, as well as for industrial markets in the United States and internationally. The company operates in two segments, Electrical and Industrial Products, and Galvanizing Services."
How did they do in the latest quarter?
On January 5, 2007, AZZ announced 3rd quarter 2007 results. For the quarter ended November 30, 2006, revenues increased 47% to $65.4 million from $44.3 million the prior year same period. Net income climbed 203% to $5.3 million or $.88/diluted share, up sharply from $1.7 million or $.30/diluted share the prior year same period.
In the same announcement, the company increased guidance for fiscal 2007 with earnings estimated to be in the range of $3.15 to $3.25/diluted share. Revenues were estimated in the range of $250 to $260 million.
Just two weeks after the earnings report, the company threw some financial "cold water" on the stock price by estimating that fiscal 2008 earnings and revenue would come in below 2007 results. They announced projected earnings of $2.70 to $2.80/share for the fiscal year ended February 29, 2008, on revenue of $275 to $285 million. The market appears to have digested this bit of bad news and is already thinking beyond this estimate as the stock price has now firmed and once again moved towards the upside.
In general, I would prefer not to buy any stock with estimates of an earnings decline. However, in light of the strong revenue growth estimated, and the current strong price move, I was willing to give the stock a chance. We shall have to see how this one works out for me.
How about longer-term financial results?
AZZ has indeed had a bit of an erratic financial past. Looking at the Morningstar.com "5-Yr Restated" financials on AZZ, we find that revenue which was $153 million in 2002, climbed to $183 million in 2003, before dropping back to $136 million in 2004. Since 2004, revenue has climbed to $187 million in 2006 and $231 million in the trailing twelve months (TTM).
Earnings have also been a bit erratic, climbing from $1.50 in 2002 to $1.63/share in 2003, before dropping back to $.79/share in 2004. Since then earnings have been climbing steadily and rather dramatically to $1.38/share in 2006 and $2.93/share in the TTM.
This is a small company with a fairly stable number of shares with 5 million shares reported in 2002 increasing to 6 million in the TTM.
Free cash flow is currently positive but also a bit erratic with $11 million in 2004, $0 in 2005, $6 million in 2006 and $2 million in the TTM.
The balance sheet is solid with $1.1 million in cash and $100.7 million in other current assets. Compared to the $50 million in current liabilities, this $101.8 million in current assets yields a solid current ratio of just over 2.0.
What about some valuation numbers?
Examining Yahoo "Key Statistics" on AZZ, we can see how small a small cap stock this is with a market capitalization of only $280.04 million. The trailing p/e is a reasonal 16.37 with a forward p/e (fye 28-Feb-08) not much different at 16.78.
Looking at the Fidelity.com eresearch website, we find that AZZ has a Price/Sales ratio (TTM) of only 1.15, with an industry average of 34.10. The company is not quite as profitable as other companies in its industry reporting a Return on Equity (ROE) (TTM) of 18.16% slightly lower than the industry average of 20.78%.
Finishing up with Yahoo, we find that there are 5.82 million shares outstanding and 5.57 million that float. As of 3/12/07 there were 213,100 shares out short representing 3.8% of the float or 7.2 trading days of volume. This is a significant short interest from my perspective, relative to my own '3 day rule' for short interest, and may lead the company subject to a short squeeze if any good news is reported. No dividend is paid and no stock split is reported.
What does the chart look like?
If we look at the AZZ "Point & Figure" chart from StockCharts.com, we can see that after a price correction from $20 in February, 2002, to a low of $8.50 in March, 2003, the stock has strongly moved higher the past four years to a high of $55 in January, 2007. The stock recently came under pressure on the back of the guarded guidance for 2008, correcting down to $36, before once again moving higher to the current level of $48.15. The stock does not appear to have broken down key support levels on this chart.
(You can see that AZZ was previously called Aztec Manufacturing)
Summary: What do I think about this stock?
Well, let me say that I chose to purchase this stock. I do not think I gave the reduced guidance for 2008 much attention, and this is a bit of a drag on the stock price. Otherwise, technically the stock is behaving well, the last quarter was very strong, the Morningstar.com report looks solid, valuation is reasonable and the balance sheet looks healthy. I am now a stockholder in this company which is really very small. Wish me well and I shall keep you posted.
Thanks again for 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.