Manitowoc: Purely Speculative... For Now

Anyone who has entered stock screeners lately looking for cheap undervalued and beaten down stocks has probably run into their share of machinery and construction related stocks. Caterpillar (CAT), John Deere (DE), Terex (TEX), Manitowoc (MTW), Ingersoll-Rand (IR) to name a few. They all have the same things in common sub 10 Forward P/E’s, minuscule P/S, and they are all down over 50% from their 2008 highs. They all beg the question of when are they just too cheap not to buy and hold?

One stock that still doesn’t look ready to be bought is Manitowoc. MTW is a maker of cranes and also has an expanding food service business. The latter was recently boosted with the $2.7 billion acquisition of Enodis PLC that completed on 10/27/2008.

MTW released earnings after the close on Wed. Jan 28^th and since than has been down four straight days and fallen 27% going from 6.84 to a recent 4.95. MTW reported full year earnings of $1.32 on $4.5 billion of sales, and on the company's call was forecasting $4.9 billion of revenue and $1.35-1.60 in EPS for 2009. The company was also quite optimistic in its language and spoke about strength in its core businesses, achieving synergies, and overall being well positioned to survive the current global gloom. This is in contrast to Caterpillar's quite dire 2009 outlook. (Thoughts of mine on CAT's earnings and outlook can be found here).

Taking into account the lower estimate of $1.35, MTW currently trades at a minuscule 3.67 Forward PE, so obviously the market isn't buying into MTW's rosiness.

The biggest concerns for 2009 are a decrease in revenues in the Crane Division and the $2 billion in debt the company took on to purchase Enodis. Additionally, there is balance sheet deterioration as inventories and accounts payable have continued to grow, to a current $925 million and $1.2 billion respectively.

Regarding the crane business, MTW expects a 20% decrease in sales. The big worry is that cancellations, which are already hitting the backlog, will increase and a further revenue decrease will occur. Also, if MTW does maintain its sales goal, it may be at the expense of lowered prices which will sacrifice earnings and could lead to a write-down of inventory value.

An earnings loss, or write-downs, could then adversely affect MTW's financial strength and lead to debt covenant violations.

In its defense, MTW set a billion $ debt reduction goal for the year based on sales of assets, inventory-runoffs, and usage of cash flow.

The bottom line is that MTW doesn't need to hit its EPS goals (no one other than MTW seems to think it will) for 2009 to be successful, but the company does need to show that it can handle the increase of debt and be able to decrease its inventories. Until then, buying MTW is purely speculative and not value buying.

Disclosure: None

Comments

[Seeking rea...:]

If you had any financial analysis skills and could project a complete set of financial statements, you would see the very large cash flow generating characteristics of MTW and that the debt reduction targets are reasonable given debt already repaid, working capital decreases, and sale of the ice making equipment business. I guess it is much more fun, however, to just make superficial comments that make you sound like an "expert".

Feb 04 09:34 AM

[Fruffing:]

Seekreal-
Sale of Ice Making div? Saw the shipyard tnxn, how material is the Ice sale?
Thanks

Feb 04 12:13 PM

[Seeking rea...:]

In the current financing and economic environment the proceeds could be anywhere from $250 million to $400 million. The sale was mandated by EU regulators as a condition for approving the Enodis acquisition.


On Feb 04 12:13 PM FrankR wrote:

> Seekreal-
> Sale of Ice Making div? Saw the shipyard tnxn, how material is the
> Ice sale?
> Thanks

Feb 04 02:11 PM

[Calamity Jane:]

As for as I know, there was no sale of the ice making division. They have, instead acquired another food section with the focus on, not ice, but hot foods. They already have their freezer and ice deal. They make freezers and coolers and walkin freezers and coolers and ice machines and goodness knows, what else. The only sale of anything that I know anything about is their ship yards. Dealing with big ships, you know. No ice to that.

Feb 04 04:55 PM

[Ron Finberg:]

On Feb 04 09:34 AM Seeking reality wrote:

> I guess it is much
> more fun, however, to just make superficial comments that make you
> sound like an "expert".

I am a new out here to contributing articles so I guess the comment is fair.

My Cash Flow Math

300 Million (paid down in 2008 with available cash)
70 Million (Enodis Contribution, est from 2006 & 2007 reports)
200 Million (anticpated cash flow from MTW pre merger, with 20% reduction in sales)
250 (asset sales) **Obviously debatable, but premiums for asset sales are rare now
-125 (debt payments- 6.25% on 2Billion)
695 Total,

Although, I think the numbers are high and the Crane division slowdown will be greater than MTW anticipates.

My biggest gripe is that mangement seems to be over-enthusiastic about 2009, compared to other firms that have reported and have similar construction and overseas sales.

Feb 04 06:00 PM

[dsrtwriter:]

MTW may or not be a buy, but I have shares and I am definitely not selling them at these prices.I may add if prices drop a bit more, but the shares I own I am going to hold and forget about for four years.

Feb 05 03:05 PM

[Calamity Jane:]

Right on dsrtwriter. I am in the same boat as you. I am not giving my stocks to anybody. It is too late to jump out now. One thing about it, when they go back up we will benefit from waiting. I have got too much time invested to go back now. Manitowoc is a good company and they cant help if the bottom has fell out of the economy. Sooner or later, it will rebound. Patience is the policy.

Feb 23 03:28 PM

[prontoranger:]

I'm holding my MTW stock, too. The price may go a bit lower and if It does I'll buy some more of the stock, but I believe when the economy does begin to improve my patience with the stock will be rewarded.

Feb 24 04:25 PM

[If U Say So:]

Well, broke the 2003 lows and 1998 lows, a few more pennies will get us 1997 lows.......then we're looking for early 1995 lows of $1.60. I'm not making a prediction but find the lack of buying at any price very telling.

Feb 25 12:15 PM

[dlwcmyk:]

I have been an investor for over 30 years, do the math. I'm holding what I have and buying with patience for the future. I don't think John West would recogonize the company today.

Feb 25 11:05 PM

[texsun:]

Manitowoc is unlike Cat and Deere in that they have more specialized niche machinery and thus fewer competitors. oh, i forgot, these guys don't know much about the industries the stocks are in, they just crunch numbers. like one that said CNH was a bargain. say again?? inferior product? poor distribution network? hmmmm :)

Mar 02 03:16 PM

[MTWer:]

Now what?

What does it mean by "violate some debt covenants"?

Does it mean that it is going to default on debt payments? Is MTW staring at bankruptcy?

I know it has super high debt to equity.

Mar 31 10:16 PM