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I was looking through the list of top % gainers on the NYSE this afternoon and came across Valmont Industries (VMI) near the top of the list. VMI closed at $63.97, up $6.66 or 11.62% on the day. I do not own any shares nor do I have any options on this stock. I would like to share with you some of my thoughts on this stock and explain why I believe
VALMONT (VMI) IS A BUY
What exactly does this company do?
According to the Yahoo "Profile" on Valmont (VMI), the company
"...and its subsidiaries produce fabricated metal products; metal and concrete pole, and tower structures; and mechanized irrigation systems worldwide. The company operates through five segments: Engineered Support Structures, Utility Support Structures, Coatings, Irrigation, and Tubing."
How did they do in the latest quarter?
It was the announcement of 1st quarter 2007 results yesterday after the close of trading that pushed the stock price higher today. The company announced that for the quarter ended March 31, 2007, sales came in at $340.7 million, up sharply from sales of $303.6 million in the same period last year. Net earnings were $18.7 million, up from $13.1 million or $.72/diluted share, up from $.52/diluted share in the same period last year.
The company beat expectations of $.63/share per Thomson Financial.
How about longer-term financial results?
Checking the Morningstar.com "5-Yr Restated" financials on Valmont, except for a dip in sales from $855 million in 2002 to $838 million in 2003, sales have steadily grown to $1.28 billion in 2006. Earnings also dipped from $1.37/share in 2002 to $1.05 in 2003, then resumed their climb going up to $2.38/share in 2006. The company has been paying dividends during this time, increasing it intermittently from $.29/share in 2002 to $.37/share by 2006. The shares outstanding has been fairly stable, increasing only from 24 million in 2002 to 26 million in the trailing twelve months (TTM).
Free cash flow has been a bit erratic as well with $(12) million reported in 2004, improving to $99 million in 2005 and pulling back to $31 million in 2006.
The balance sheet appear solid with $63.5 million in cash and $431.2 million in other current assets. This total of $494.7 million in current assets, when compared with the $216.9 million in current liabilities yields a healthy current ratio of 2.28. In addition, the company has $274.1 million in long-term liabilities as reported by Morningstar.
What about some valuation numbers on this stock?
Checking the Yahoo "Key Statistics" on Valmont Industries, we find that this is a mid cap stock with a market capitalization of $1.64 billion. The trailing p/e is a moderate 26.88 with a forward p/e of 18.54 (fye 30-Dec-08) estimated. Thus, the PEG comes in at a reasonable 1.24. (5 yr expected).
Using the information from the Fidelity.com eresearch website, we can see that the Price/Sales (TTM) comes in at a reasonable 1.11, when compared to the industry average of 1.39. In terms of profitability, the company was a little less than the average of 23.33% Return on Equity, coming in at 17.04%.
Finishing up with Yahoo, we can see that there are 25.66 million shares outstanding with only 17.18 million that float. As of 3/12/07, there were 1.52 million shares out short representing 9.6 trading days of volume. With the announcement of strong earnings last night coming in ahead of expectations, there was likely a bit of a short squeeze today, as the short-sellers scrambled to buy shares to close-out their positions. The company traded over 1.1 million shares today, more than five times the usual volume of 179,883 shares/day.
As I reported above, the company does pay a dividend with a $.38/share forward dividend yielding 0.7%. The company last split its stock 2:1 back in June, 1997.
What does the chart look like?
Reviewing the "Point & Figure" chart on Valmont from StockCharts.com, we can see that except for an apparent breakdown in support for the chart in March, 2007, the company now with the sharp rise in price, is again well above its support line, having broken through the short-term area of resistance. That means simply, that while the chart recently showed a bit of a struggle, the company stock appears to be moving higher without difficulty at this time.
Summary: What do I think?
I like this stock. The company moved strongly higher today in a relatively anemic market. The company reported strong earnings last night and beat expectations. They have a strong record of steady revenue, earnings, and dividend growth the past several years while maintaining a relatively stable number of shares. Free cash flow is positive, the balance sheet is solid, and valuation is reasonable with a PEG under 1.5, a Price/Sales low for its group, and a Return on Equity that could be a bit stronger, coming in below the industry average. Finally, the chart looks strong and the significant short interest may well support further price appreciation.
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