Manitowoc (MTW) is the seventh addition to my Top Ten list for 2013. As a member of my 2012 list, Manitowoc returned 24%, making it an underperformer to the rest of my list, which is up 61% so far this year versus an 11.6% gain for the S&P 500. (See my instablog if you'd like to review the performance).
Of course, who wouldn't take such underperformance, and my guess is that Manitowoc has at least as much in store for investors in 2013. In fact, I expect this stock will be trading where it deserves - in the $20's (based on my estimation of intrinsic value) - by the end of next year, making it a likely candidate to outperform the S&P 500.
As I did with General Electric (GE) in my last column, it's only fair that I review last year's comments on Manitowoc, since it's a repeat pick.
Net profit margins, according to my estimates, will soon be 5.5 to 6%, suggesting an earnings stream of $2.30 or so in a couple of years. I'm not sure what multiple the market will assign to this earnings stream, but 12 to 14 is probably a conservative guess, given that the long-term growth prospects for this company are quite impressive. That equates to a stock price of $27 to $32.
My analytical work yields the same conclusion, the only difference is timing. It might take a couple of years from now (at the most) to reach those margin targets, so I should have said 2 to 3 years.
Manitowoc is early in a multi-year upswing
Let me tell you a little bit about Manitowoc. It's comprised of two businesses, the Crane business, which accounts for about 60% of sales, and the Foodservice business, which accounts for 40%. I'll tell you about Foodservice first: You've surely seen their market-leading products in restaurant chains like Starbucks, McDonald's and Subway, among many others. They're the market leader in accelerated cooking ovens (up to 15x faster than conventional), as well as fryers, ice machines, beverage dispensers, walk-in freezers and much more.
Foodservice is a nicely profitable business, and will generate about $1.6 billion in sales this year. It has the potential to be a 10% top-line grower, with some decent-sized margin leverage to boot.
The Crane business participates in a long-term secular dynamic, the infrastructure buildout of the world. They'll do about $2.4 billion in sales this year, but it's the potential that investors should focus on. The company is relatively early in the crane cycle, yet a boom might be right around the corner. Manitowoc crane sales in energy and infrastructure have already picked up strongly, and the missing ingredient to a boom is an upswing in construction. (And if you've read any of my recent work, you already know what I'm going to say on that issue.) I'm quite bullish on real estate and construction, and believe we're in an upswing that could last to the end of the decade.
We're coming off a mind-boggling low base in real estate and housing, and that's precisely the point - the magnitude of a move back to normal is huge, and Manitowoc will be a beneficiary. At a minimum, I'm anticipating a doubling of the stock from it's current quote of $14.17 by the end of 2014.