Today we have a moderately speculative idea.: take shares of the American industrial enterprise EnPro Industries (NYSE: NPO), in order to make money on the growth of production in the United States.
Growth potential and validity: 13,5% behind 14 months excluding dividends and the separation of the company's divisions into separate issuers; 9% per annum during 10 years, taking into account dividends and the separation of the company's divisions into separate issuers.
Why stocks can go up: the company is cheap, her business is favored by the conjuncture and can be bought.
How do we act: we take shares now by 101,88 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
NPO is an industrial business, producing components for production. In my opinion, NPO is a typical industrial conglomerate, which brings together very different brands.
According to the annual report, the company's revenue is divided as follows:
- Sealing – 52%. These are different solutions for pipes, Sealing, Isolation. Segment Adjusted EBITDA margin - 23,6% from its proceeds. Brands of the segment and their share in revenue: Garlock — 49%, Stemco — 29%, Technetics — 22%.
- Sophisticated coating solutions — 22%. These are products, necessary for high-tech industries. For example, optical filters and similar complex things. Segment Adjusted EBITDA margin - 29,6% from its proceeds. Brands of the segment and their share in revenue: Technetics Semi — 62%, LeanTeq — 21%, Alluxa — 14%, NxEdge — 3%.
- Designed components — 26%. It's like metal fasteners., Valves. Segment Adjusted EBITDA margin - 14,3% from its proceeds. Brands of the segment and their share in revenue: GGB — 63%, CPI — 37%.
Revenue of the company by application:
- Aerospace — 4,2%.
- Automotive 5,6%.
- Chemical industry and materials processing — 10,1%.
- Food industry and pharmaceutical production — 5,8%.
- General industrial purpose — 26,5%.
- Production of large and medium-sized machines for cargo transportation — 16,1%.
- Oil and gas — 7,4%.
- Energy production — 4,1%.
- Semiconductors — 19,1%.
- Other - 1%.
Revenue by country and region:
- USA - 46,72%.
- Europe - 23,29%.
- Asia - 16%.
- Unnamed countries in the Americas — 7,28%.
- Additional, unnamed regions — 6,71%.
Arguments in favor of the company
Guessed. I've been wanting to do an idea for this company for a long time., but stocks seemed expensive to me. And since the beginning of the year, they have fallen sharply - from almost 117 to 101,88 $. I think, that we may expect a rebound due to the following circumstances.
Now and then. Companies favor U.S. industrial growth, and in other regions. It's good for NPO now. But in the long run, I wouldn't expect, that the company will be left without work: it has a fairly diversified business, where all segments as a whole balance the overall result and mitigate the risks of deterioration in the overall financial condition of the company due to a decrease in demand in one of the areas of consumption of the company's products.
Inexpensive. The company is very cheap.: P / S — 1,75 and capitalization of 2.01 billion. Think, in its shares can run those, who are looking for "reliable, strong issuers with good prospects, and to be inexpensive.".
Dividende et impera. I believe, that there is a lot of potential hidden in these stocks, which will be implemented when investing at long distances.
The company pays 1,08 $ dividend per share per year, what gives 1,1% per annum. I do not think, that these dividends are going to be hit by a crowd of greedy investors right now., investing "for the sake of divas". But if you invest for the long term, then there is a considerable probability of growth in dividend yield due to the development of more marginal areas such as semiconductor business by the company..
A long-distance company has good potential to spin off its most promising divisions into individual issuers — and, probably, these new issuers will grow faster than the single NPO quotes.
Can buy. NPO in absolute numbers is so cheap, that it can be bought by a larger enterprise, which some units integrate into their system of operations, and that, what will remain, will later be issued on the stock exchange as a separate issuer.
What can get in the way
Europe. The company has almost a quarter of sales made in the Old World, therefore, you should consider, that known events can negatively affect the work of industrial enterprises in the region - and, respectively, reduce NPO sales.
Accounting. The company has 1.653 billion debts, of which only 379.1 million need to be repaid within a year. The company has enough money at its disposal to repay term debts: 338,1 million in accounts and 177 million counterparty debts. Important to remember, that NPO is actively spent on expanding and modernizing the business and such a large debt can greatly limit the potential for dividend increases.
Not that inexpensive. On P Paper / The company's E is about 11,2, that is very little. But about 2/3 the company obtained this result due to non-core one-time operations. Real P / The company's E is about 33. It's not that much., but not so little.
"Somewhere wrong I'm going". Today, production in developed countries is facing rising costs for logistics and raw materials. Some put an increase in costs in the cost of their products, but I think, that the NPO will not be able to do this indefinitely and these problems will increasingly weigh on its reporting..
What's the bottom line?
Shares can be taken now by 101,88 $. And then there are the following options:
- wait for quotes to return to 116 $. Think, that we can wait for this for the next 14 Months;
- keep shares next 10 years, while the NPO is divided into different companies and, I dare to hope, increases payments.
The current dividend yield of NPO shares is low, therefore, there is no point in fussing with the surveillance of news about the reduction of payments. I don't see a high probability of a strong drop in stocks even in the event of a complete cancellation of dividends..