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I was looking through the list of top % gainers on the NYSE and came across Actuant (ATU) which is currently trading at $34.70, up $1.75 or 5.31% on the day. I do not own any shares or options on this stock but do think it deserves a spot on this blog.
ACTUANT (ATU) IS RATED A BUY
Let's take a closer look at this company and I will explain to you why I like this stock.
What exactly does this company do?
According to the Yahoo "Profile" on Actuant, the company
"...manufactures industrial products and systems worldwide. It operates in four segments: Industrial, Electrical, Actuation Systems, and Engineered Products."
How did they do in the latest quarter?
On December 19, 2007, ATU reported 1st quarter 2008 results. For the quarter revenue came in at $415.1 million, up 21% from the prior year. Earnings were $27.4 million or $.43/share up from $25.1 million or $.41/share last year. Prior to restructuring charges, earnings were $.52/share.
With this report the company actually beat expectations which were for $.48/share and revenue of $395 million according to Reuters Estimates. In the same report, the company also raised guidance for the second quarter, with earnings now expected at $.39 to $.42/share on sales of $385 to $395 million. Analysts had been expecting earnings of $.42/share on revenue of $379.6 million.
As you probably know, this is what I look for in an earning report. That is, strong revenue and earnings growth, beating street expectations, and raising guidance. In my terminology, I call this a 'trifecta plus'. (But of course, I don't go to the races, so I don't really know much about horse-racing!)
What about longer-term results?
As I have written about over and over on this blog, my search for stocks is to identify companies that have consistently been reporting great results. Not just a quarter or even one year of financial success. I know that this search is pretty 'picky' and I shall miss lots of great opportunities, but my belief is that if we restrict our attention to the finest companies available, we shall have a more consistent performance than otherwise.
Anyhow, I like to refer to Morningstar for these results, and the Morningstar.com "5-Yr Restated Financials" on Actuant support this consistent pattern. Revenue has grown steadily from $585 million in 2003 to $1.46 billion in 2007. Earnings have also steadily increased from $.59/share in 2003 to $1.69/share in 2007. The company initiated dividends in 2006 at $.04/share and also paid $.04/share in 2007. (If I had my druthers, this would also show an increasing pattern--but the presence of a newly initiated dividend does offer an attractive feature to an investment.)
Outstanding shares have not been extremely stable; that is they have increased from 49 million in 2003 to 64 million shares in 2007. However, this approximately 25% increase in shares was accompanied by an approximately 200% increase in revenue and a more than 200% increase in earnings. This is more than acceptable 'dilution' imho.
Free cash flow is not only positive but increasing with $82 million in free cash flow reported in 2005, growing to $102 million in 2006 and $146 million in 2007.
The balance sheet is solid with $87 million in cash and $419 million in other current assets. This total of $506 million in total current assets, when compared to the $290.8 million in current liabilities yields a current ratio of 1.74. Generally ratios abover 1.2 are 'adequate'. The company also carries a not insignificant $710 million in long-term liabilities on its books per Morningstar.
What about some valuation numbers?
According to Yahoo "Key Statistics" on ATU, the company is a small cap stock with a market capitalization of only $940.39 million. The trailing p/e is a very reasonable (imho) 20.23 with the forward p/e even nicer at 15.43 (fye 31-Aug-09).
With the reasonable valuation and the strong record and estimates, ATU ends up with a PEG under 1 at 0.98. Generally from my perspective PEG ratios between 1.0 and 1.5 are reasonably priced. Companies with PEG's under 1.0 are relatively 'cheap', and above 1.5 are generally 'rich' in valuation.
Using the Fidelity.com eresearch website for additional valuation numbers, we can see that the Price/Sales ratio is also reasonably priced at 1.19 (TTM) compared to the industry average of 1.47. In terms of profitability, at least as measured by the Return on Equity (TTM), Fidelity again shows that not only is the company less 'expensive' than its peers by the Price/Sales ratio, the company also is more profitable with a ROE (TTM) of 22.48%, compared to the industry average of 21.52%.
Returning to Yahoo, the company has 27.12 million shares outstanding (54.28 million adjusted for a split), and 53.50 million that currently float. As of 11/9/07, there are 4.77 million shares out short representing 8.9% of the float and 8.1 trading days of volume (the short ratio). Using my own '3 day rule' on short interest, the 8.1 days of trading volume is quite significant and with the ongoing 'good news' being reported by the company, is only another bullish indicator for the stock.
As I noted above, the company is paying $.04/share in annual dividends yielding only 0.04%. The last stock split was last month on November 9, 2007, when the company split its stock 2:1.
What about the chart?
Examining the 'point & figure' chart from StockCharts.com, we can see what I would consider a very strong price performance since January, 2002, when the stock broke through resistance at $9.00/share. The stock bottomed as low as $.63/share in September, 2000 (of course adjusted for stock splits). Since 2002, the stock price has literally been on a tear, climbing to the recent levels of $34.38, just under its apparent all-time high of $35.
Summary: What do I think?
Needless to say I like this stock a lot. I am not buying any shares as I do not have a 'permission slip' from my own portfolio to be adding positions. But if I were, this is my kind of stock!
Reviewing a few of the things that make me attracted to this equity, let's recall that the company just reported a quarterly report with strong revenue growth and earnings growth. They beat expectations and they raised guidance.
They have been steadily been reporting strong results for the past five years or more, have initiated a dividend, kept the outstanding shares reasonably stable, and are reporting positive and growing free cash flow. The balance sheet looks solid.
Valuation-wise, the p/e is just over 20 and the PEG is under 1.0. The price/sales ratio is lower than average, and the Return on Equity is higher than average. On top of this, there are lots of shares out short and the chart looks terrific. WHAT is there NOT to like :).
Anyhow, that's a pick for you for the end of the year!
If you have any comments or questions, please feel free to leave a comment on the blog or email me at email@example.com. Furthermore, if you get the time, be sure and visit my Stock Picks Podcast Site, where you can listen to be discuss some of the stocks from the blog. Or visit my Covestor Page where my actual trading portfolio is tracked and compared to the S&P and other investors real-time without me actively providing information. In addition, for a review of my past stock picks for the year, visit my SocialPicks Page where these are recorded and reviewed.
Again, thanks for visiting! Have a great New Year and may 2008 find us reading more about good things in the world instead of Assassinations, Wars, Terrorism and Torture. (o.k. I had to put a little bit of politics in there!)
Regards to all of my readers and their families!