Sunday, November 01, 2009

BAGAKOAA November 1, 2009 Hydraulic battles PH vs HON vs FLS


November 1, 2009 Hydraulic battles PH vs HON vs FLS

A question was posted on and it got me hunting.  Here are the results.

In my humblest of opinions, PH, (which I do not own) has PE of 25+ which seems a bit rich. PB below 2 is acceptable. It’s throwing a decent an average dividend with a yield of 1.89. It’s net profit margin is higher than industry average but half of its 5 years average. ROE is a weak 7.2. Quarterly revenues are tracking in the wrong direction and NIBT is not improving in recent quarters. 5 year income statement review is sad, based on current income levels they could pay off their long term debt in 4 years or less which is not too shabby. IBD pick FLS way over PH 95 versus 45, if that matters.

Schwab likes it, Argus Likes it, Ned Davis Likes it. Argus moved its target price to 65 from 55 and notes is advantage over competitors, but does not explain those advantages? They go on to explain their 12,000 touch points helps customer service and satisfaction. The target prices seem a bit aggressive as 2010 EPS estimates seem to be in the 1.90-2.00 range. At current and estimated PEs of 25-26, its hard to justify a 65 target price. 2011 EPS estimates are in the 3.00 range which supports that thinking.

HON is one I own. Its PE is 12.37 and throws a nice 3 something and change yield on its dividend. Net Profit margin is double industry average and double PHs and above its 5 years average, ROE is a respectable 22.72, PB, is 2.89, a little rich for me but it get’s talked up a lot, quarterly revenues are flat, but not going down (off from last year), same with NIBT on a quarterly basis, annually both rev and NIBT track very nice over the last 5 years, and they can pay off their LTD in about 16 months from income. Very nice fundies which is why I own it. IBD gives it a 48 but has it in diversified industrials. Argus is not as bullish on this as PH and attributes about 50 cents EPS to pension schemes it will have to settle. Argus is not giving a TP, but do the math and you got a 36 dollar stock. Personally I think they will surprise and be a 40-42 by Q1 2010.

FLS is one I have never looked at. PE is 12.8 similar to HON. Net profit margin is attractive at 9.02 and above industry and 5 years averages. ROE is great a 27.66. Quarterly revenue tracking is sideways which in their environment is not a bad thing. Same with NIBT. Wow, the annualized picture is even prettier. Nice growth in both revenue and profit. They can pay off their debt in one year from current income and there seems to be no games on the balance sheet. Credit Suise, Ned Davis and Rueter all like the stock. Argus does not report for some reason. There are a couple of target rates above the 112 to 115 range.

Thanks for the question. I am going to listen to the last conference call on FLS and might initiate a position. It might have some legs to it.

So to answer your question, I like HON, FLS and PF in that order for the next 12 months.

Salve Lucrum


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