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Friday, 25 April 2008
Trimble Navigation (TRMB) "Revisiting a Stock Pick"

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.

The stock market has been acting a little bit healthier the last week or two.  And it is nice to see 'our kind of stocks' moving higher and making the top % gainers list once more.

In fact, reviewing the list of top % gainers on the Nasdaq today, I noticed that Trimble Navigation (TRMB), an 'old favorite' of mine, had made the list closing at $34.71, up $6.58 or 23.39% on the day.  I do not own any shares nor do I have any options on this stock.

I say 'old favorite' because I first wrote up Trimble on Stock Picks Bob's Advice on April 28, 2004, when the stock was trading at $25.98, which adjusted for a 2:1 stock split on February 23, 2007, works out to a 'pick price' of $12.99.   With TRMB closing at $34.72 today, this represents a gain of $21.73 or 167.3% since that original posting.

In addition to the write-up in 2004, I again visited Trimble (TRMB) on Stock Picks on January 25, 2006, when the stock was then trading at $41.76, which adjusted for the same 2:1 split in 2007, works out to a pick price of $20.88.  Again, with the stock closing today at $34.72, this represents an appreciation of $13.84 or 66.3% since that pick!

So you can see that I didn't really want to hesitate about writing up this stock once again today!  

Let's take a closer look at Trimble (TRMB) and I will explain why

TRIMBLE NAVIGATION (TRMB) IS RATED A BUY

First of all,

What exactly do they do?

According to the Yahoo "Profile" on Trimble (TRMB), the company

"...provides advanced positioning product solutions to commercial and government users worldwide. It operates in four segments: Engineering and Construction, Field Solutions, Mobile Solutions, and Advanced Devices."

How did they do in the latest quarter?

Yesterday, after the close of trading, Trimble announced 1st quarter 2008 results.   Revenue for the quarter ended March 28, 2008, came in at $355.3 million, up 24% over the revenue of $285.7 million in the first quarter of 2007.

Net income for the quarter was $40.1 million, up 40% compared to net income of $28.7 million in the same quarter last year.  Diluted earnings per share worked out to $.32/share, up 35% from diluted eps of $.24/share in the first quarter of 2007.

Most importantly, the company beat expectations of $.35/share (they earned $.40/share excluding one-time items).  Revenue had been expected to come in at $338.7 million and as noted above, they came in at $355.3 million. 

To top off things, the company went ahead and raised guidance for 2nd quarter 2008.  Analysts had been expecting revenue of $375.2 million and earnings of $.41/share.   The company guided to revenue of $374 to $379 million in revenue and earnings between $.44 and $.46/share.

In my own idiosyncratic terminology, I like to call this a 'trifecta-plus' which for me means an earnings report of increasing earnings, greater revenue, that beats guidance and then the company raises guidance.  Trimble delivered and the street responded in a very favorable fashion!

What about longer-term results?

Checking the Morningstar.com "5-Yr Restated" financials on TRMB, we can see that revenue has been steadily growing from $541 million in 2003 to $1.22 billion in 2007.  During this period earnings have also been increasing from $.39/share to $.94/share.  Outstanding shares have grown modestly from 100 million shares in 2003, they company increased the float by 24% to 124 million in 2007.  During this same time, the sales increased more than 100% and earnings likewise increased greater than 100%.  Thus, this is an acceptable dilution from my perspective. 

Free cash flow the last several years has been positive and growing, increasing from $69 million in 2005 to $174 million in 2007.  The balance sheet, as presented by Morningstar, appears solid.  The company has $103 million in cash and another $453 million in other current assets.  Comparing this to the $249.9 million in current liabilities yields a current ratio of 2.22.

What about some valuation numbers?

According to the Yahoo "Key Statistics" on Trimble (TRMB), the company is a mid cap stock with a market capitalization of $4.23 billion. The trailing p/e is a relatively rich 37.01, with a forward p/e of 20.41 (fye 28-Dec-09 estimated).  Thus, with the rapid growth anticipated, the PEG comes in at a reasonable 1.12.  (Reasonable for me is 1.0 to 1.5).

Referring to the Fidelity.com eresearch website, we can see that at least by the Price/Sales (TTM) ratio, TRMB is reasonably priced with a ratio of 2.77 compared to the industry average for Price/Sales (TTM) of 8.13.  In terms of profitability, Fidelity reports TRMB with a Return on Equity (TTM) of 11.31, ahead of the industry average of 9.41%.

Yahoo reports that TRMB has 121.16 million shares outstanding with 120.19 million that float.  As of 8/26/08, there were 5.64 million shares out short representing 7 trading days of volume (the short ratio), well ahead of my own idiosyncratic '3 day rule' for short interest.  This short interest was ahead of the prior month's 4.78 million number and today's sharp move higher may well have been the result of short-sellers getting 'squeezed'.  

No cash dividends are paid, and as I noted above, the last stock split was a 2:1 split on February 23, 2007.

What does the chart look like?

Reviewing the 'point & figure' chart on Trimble (TRMB) from StockCharts.com, we can see that this stock has not escaped the recent pressure on all stocks this year as it dipped from its high at $43/share set in October, 2007, to a recent low of $22 in January, 2008.  With the stock now trading at $34.80, it is moving in on resistance area (the 'red line')---it would nice to see this stock break through this price area to confirm a new bullish move higher.

Summary:  What do I think about this stock?

Well it would be corny to say I love this stock.  I mean, my kids would say, 'if you love that stock, why don't you MARRY it?'  O.K., so it isn't love, but how about intense affection?

They made a terrific move higher today.  This is the third time it has come across my horizon the past four years!  

Their earnings were great, they beat expectations and raised guidance.  They have a long-term track record to 'write home about!'  I mean, steady revenue growth, steady earnings growth, relatively stable outstanding shares, growing positive free cash flow and a strong balance sheet.

Valuation is a tad rich per p/e but the PEG suggests that even this isn't so bad!  Meanwhile, the Price to Sales is less than its peers and the Return on Equity is greater!  To top it off there were loads of shares out short and I suspect some of them are getting squeezed.  Even the chart looks acceptable without being overvalued.

Now, if only I had purchased some shares.  I still don't have a signal to be buying anything, but if I were....well this is the kind of stock that would be making itself home in my portfolio! 

Thanks again for visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Covestor Page where you can read about how my actual trading portfolio is performing, my SocialPicks page where you can see how my picks are doing from the past year or so, and my Podcast Page where if you haven't had enough of my discussions, you can download some mp3's of me talking about some of the many stocks I write up and answer emails from readers.

Have a great weekend everyone!

Yours in investing,

 

Bob 


Posted by bobsadviceforstocks at 6:55 PM CDT | Post Comment | Permalink

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