Hillenbrand Breaking Out, Getting Bought Or Going Down Hard

| About: Hillenbrand, Inc. (HI)

Hillenbrand (NYSE:HI) is one of the great mystery stocks of 2012. Much more fun to speculate about than the fiscal cliff. Follow me inside.

A few years ago, this company was just about dead. No, really. Their main operating unit was Batesville and they make caskets. Caskets can be a good business, folks just dying to get them, but as cremation increases in popularity you have a lid on growth, so to speak.

So Hillenbrand took action. It made three acquisitions over the last few years:

  1. K-Tron, which makes feeding systems for industrial plants, was bought for $150/share cash, or $432 million, a 32% premium over its previous value.

  2. Rotex, which makes industrial screening equipment, was bought for private equity holders Windjammer Capital for $240 million. The deal closed last year.

  3. Coperion Gmbh, a German maker of compounding and bulk material handling equipment, was acquired a few months ago. The price was initially said to be $528 million. It finally closed this month at $301 million.

It all sounds wonderful. The company now has a sales run rate of $1 billion/year, with a 30% annual growth rate over the next few years, and management says it is, as they say, "hungry for more."

But who's going to run this behemoth?

The company's namesake, Roy Hillenbrand, is 77. CEO Kenneth Camp, who announced the latest deal, and has been making the rounds of the news media, is 67. CFO Cynthia Lucchese is the baby of the management group at 52, with experience at Thoratec and Boston Scientific. Nice financial lady, but this is an industrial company, not a maker of medical equipment.

I suppose that in theory the former management can be kept in place, but how do we then know the combined company is growing at 30% per year - these guys were not world beaters before.

It all smells a little fishy. This is a story stock without anyone telling the story. It's a bunch of parts without proven leadership. It's very possible that Hillenbrand can recruit a proven leader from the area of industrial technology. It's also very possible that Hillenbrand could find a buyer for this melange, some larger company that will take the whole out for a premium and give Mr. Hillenbrand the rest he deserves.

Those are good reasons to buy HI. But they are speculations. Without leadership, any conglomerate will eventually fall of its own weight. Until I see some management in place that can take on the challenges HI has bought, I would remain skeptical.

There's a chance I'll miss the buy-out, and if that's a risk you're not willing to take then also know you've got a solid 3.52% yield on this stock, that the stock price is level year-to-date, and that you're buying a much bigger company than you would have been a year ago.

To conclude I can see reasons to buy HI, but I can also see some reasons to avoid it. Batesville, Indiana, is about mid-way on the Interstate between Cincinnati and Indianapolis, not where I usually head for speculation, but times are changing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.