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I was looking through the list of top % gainers on the NYSE today, and came across CommScope (CTV), which as I write, near the close of trading today, is trading at $54.77, up $2.08 or 3.94% on the day. I do not own any shares of CTV nor do I have any options. However, I would like to share with you why I believe this stock deserves a place on this blog and why
COMMSCOPE (CTV) IS RATED A BUY
What exactly does this company do?
According to the Yahoo "Profile" on CommScope, the company
"...together with its subsidiaries, provides infrastructure solutions for communications networks worldwide. It engages in the design, manufacture, and marketing of electronic, coaxial, and fiber optic cable products for data networking, Internet access, wireless communication, telephony, and other broadband applications."
How did they do in the latest quarter?
On April 26, 2007, CommScope announced 1st quarter 2007 results. For the quarter ended March 31, 2007, the company reported sales of $435.5 million, up 24% from last year's sales of $352.3 million in the same quarter in 2006. Net income was $45.9 million in 2007, up sharply from $12.7 million in 2006 same quarter. Earnings per share came in at $.63, up more than 200% from the $.19/diluted share reported in the first quarter of 2006.
The company raised guidance for fiscal 2007 from sales of $1.72 to $1.76 billion to a new estimate of $1.84 to $1.89 billion.
This report beat expectations of sales of $420.1 million and earnings of $.52/share. Thus the company not only came in with strong results, but they beat expectations and raised guidance. There isn't much more a company can report that is more bullish for a stock than this!
What about longer-term results?
Examining the Morningstar.com "5-Yr Restated" financials on CommScope, we can see that revenue, which took a dip from $598 million in 2002 to $573 million in 2003, has subsequently grown strongly to $1.62 billion in 2006 and $1.71 billion in the trailing twelve months (TTM).
Earnings which dipped from a loss of $(1.10) in 2002 to $(1.19) in 2003, turned profitable at $1.15 in 2004, dipped to $.78/share in 2005, but then once again resumed a climb to $1.84/share in 2006 and $2.28/share in the TTM.
The company has maintained a stable number of shares outstanding with 61 million reported in 2002, and 61 million reported in the TTM. Free cash flow has been solid with $95 million in 2004, dropping to $66 million in 2005 before increasing to $87 million in 2006 and $119 million in the TTM.
The balance sheet is excellent with $459.8 million in cash, more than enough to cover the $197.4 million in current liabilities more than twice over. In fact, the total current assets, including the $438.7 million in 'other current assets' is $898.5 million, yielding a current ratio of 4.55.
What about valuation numbers?
Looking at Yahoo "Key Statistics" on CTV, we can see that the company is a mid cap stock with a market capitalization of $3.35 billion. The trailing p/e is a moderate 24.10 with a forward p/e (fye 31-Dec-08) estimated at 19.20. The PEG (5 yr expected) is estimated at a reasonable 1.31.
Reviewing the Fidelity.com eresearch website, we can see that the Price/Sales (TTM) is a reasonable 1.85, compared to the industry average of 4.30. Profitability is quite good at 22.59 Return on Equity (TTM) compared to the industry average of 21.66.
Finishing up with Yahoo, there are 61.23 million shares outstanding with 60.53 million that float. As of 4/10/07, there were 3.87 million shares out short, representing 6.4% of the float or a somewhat significant 3.7 trading days of volume (I use 3 days as my somewhat arbitrary cut-off for short interest significance). No dividend and no stock splits are reported on Yahoo.
What does the chart look like?
Reviewing the "Point & Figure" chart on CTV from StockCharts.com, we can see that except for a slight price dip in January, 2005, the stock has moved steadily higher from the $6.50 range in August, 2002, to the current level of $55.30. Simply put, this appears to be a very strong, if not slightly overextended, chart.
Summary: What do I think?
For a variety of reasons I like this stock. Let's go over a few things I just discussed. First of all, the stock is moving strongly higher today suggesting good price momentum. The latest quarter was solid. The company beat expectations for both revenue and earnings and went ahead and raised guidance. They have been doing well for the last several years with steady revenue and earnings growth without expansion of the outstanding shares.
Free cash flow is positive and growing and the balance sheet is solid. Lots of cash.
Valuation-wise the p/e isn't too high in the 20's and the forward p/e is better in the teens. Looking at the PEG, the company is appropriately valued with a PEG under 1.5. The Price/Sales ratio is good for its industry and the Return on Equity is better than average as well. Finally, the chart looks very strong. What else could an investor want?
Anyhow, if I were buying a stock, this is the stock I would be buying today. Meanwhile, I shall be filing it away into my 'vocabulary' of stocks, waiting for the appropriate time to buy....if that should arise!
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Updated: Thursday, 31 May 2007 5:53 PM CDT