2 Industrial Goods Mid Caps With Recent Intensive Insider Selling

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 |  Includes: ATU, CBI
by: Markus Aarnio

The industrial goods sector has been the second-best performing group in one year performance with a gain of 31.3%.

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In this article, I will feature two industrial goods sector companies that have seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

1. Chicago Bridge & Iron Company N.V. (NYSE:CBI), an energy infrastructure focused company, provides conceptual design, technology, engineering, procurement, fabrication, construction, and commissioning services to customers in the energy, petrochemical, and natural resource industries worldwide.

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Insider selling by insider (last 30 days)

  • Gary Neale sold 8,050 shares on June 27 pursuant to a Rule 10b5-1 sales plan. Gary Neale currently holds 53,029 shares or less than 0.1% of the company. Gary Neale serves as a director of the company.
  • Daniel McCarthy sold 24,262 shares on June 7 pursuant to a Rule 10b5-1 sales plan. Daniel McCarthy currently holds 66,651 shares and 32,320 options or 0.1% of the company. Daniel McCarthy is Executive Vice President and Group President of Technology.
  • Philip Asherman sold 75,000 shares on June 3 pursuant to a Rule 10b5-1 sales plan. Philip Asherman currently holds 610,518 shares or 0.6% of the company. Philip Asherman is President and Chief Executive Officer of CB&I.
  • Richard Chandler sold 12,000 shares on June 3 pursuant to a Rule 10b5-1 sales plan. Richard Chandler currently holds 35,762 shares or less than 0.1% of the company. Richard Chandler is Executive Vice President, Chief Legal Officer and Secretary of CB&I.

Insider selling by calendar month

Here is a table of Chicago Bridge & Iron Company's insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
June 2013 119,312 0
May 2013 94,215 0
April 2013 22,843 0
March 2013 161,730 0
February 2013 0 0
January 2013 2,000 0
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There have been 400,100 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on May 2 with the following highlights:

Revenue $2.3 billion
Net income $33.6 million
Cash $392.8 million
Debt $1.9 billion
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Outlook

The company's guidance for 2013 is as follows:

Revenue $10.7-$11.2 billion
Adjusted EPS $4-$4.35
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Competition

Chicago Bridge & Iron Company's competitors include Matrix Service Company (NASDAQ:MTRX). Here is a table comparing these two companies.

Company CBI MTRX Industry Average (General Contractors)
Market Cap: 6.39B 406.19M 836.37M
Employees: 26,800 2,692 2.15K
Qtrly Rev Growth (yoy): 0.87 0.23 0.25
Revenue: 6.54B 841.88M 1.56B
Gross Margin: 0.12 0.10 0.22
EBITDA: 588.19M 43.56M 103.24M
Operating Margin: 0.08 0.04 0.05
Net Income: 275.78M 18.43M N/A
EPS: 2.77 0.70 0.15
P/E: 21.53 22.26 10.32
PEG (5 yr expected): 0.66 1.69 0.68
P/S: 0.98 0.48 0.36
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Chicago Bridge & Iron Company is growing faster than the industry.

My analysis

There have been four different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. The company has an insider ownership of 1.40%. The stock is trading at a P/E ratio of 21.53 and a forward P/E ratio of 11.67. The company has a book value of $18.89 per share and the stock has a dividend yield of 0.34%. The stock has a $51 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $51 target price. I would place a stop loss at $65, which is the all time high. The two main reasons for the proposed short entry are bearish Point and Figure chart and the intensive insider selling activity.

2. Actuant Corporation (NYSE:ATU) designs, manufactures, and distributes a range of industrial products and systems worldwide.

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Insider selling by insider (last 30 days)

  • William Blackmore sold 40,000 shares on June 25 and currently holds 61,465 shares or less than 0.1% of the company. William Blackmore is Executive Vice President, Engineered Solutions.
  • Ted Wozniak sold 12,000 shares on June 25 and currently holds 42,310 shares and 28,500 options or 0.1% of the company. Ted Wozniak is Executive Vice President, Business Development.
  • Brian Kobylinski sold 43,000 shares on June 24-25 and currently holds 93,060 shares or 0.1% of the company. Brian Kobylinski is Executive Vice President, Industrial Segment and China.

Insider selling by calendar month

Here is a table of Actuant's insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
June 2013 95,000 0
May 2013 123,400 0
April 2013 72,000 0
March 2013 0 0
February 2013 0 0
January 2013 8,222 0
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There have been 298,622 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the fiscal 2013 third-quarter, which ended May 31, financial results on June 19 with the following highlights:

Revenue $344.2 million
Net income from continuing operations $46.1 million
Net debt $231 million
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Outlook

Robert C. Arzbaecher, Chairman and CEO of Actuant commented on June 19:

"We expect the inflection in earnings we saw in the third quarter to continue into the fourth quarter, albeit at a more modest rate given a higher prospective effective tax rate. Taking into account current business trends from continuing operations, we expect to complete fiscal 2013 with full year sales of $1.275-1.285 billion and EPS in the $1.85-1.90 range. With another expected strong cash flow quarter, we should finish fiscal 2013 with $190-200 million of free cash flow, representing approximately 115-120% conversion of net earnings (excluding the non-cash discontinued operations write-down.) This would represent our 13th consecutive year of conversion in excess of 100%.

As we look ahead to fiscal 2014, we face a market environment in which low global GDP and uncertainty are likely to persist. Actuant will continue to focus on taking advantage of our broad product and geographic scope to capitalize on profitable growth opportunities. Based on our current view of economic indicators as well as Actuant's business trends and specific growth drivers, we anticipate fiscal 2014 core sales growth of 3-5%. Assuming current foreign currency exchange rates, we expect total sales of $1.315-1.340 billion. The benefit of volume and operational excellence initiatives, partially offset by investments in our best growth opportunities and a higher effective tax rate, should increase EPS to $1.95- 2.05 in fiscal 2014. This represents an increase of approximately 5-10% from fiscal 2013 levels, not including the benefit of potential future acquisitions or share repurchases, which continue to be a priority for the Company. We expect full year free cash flow to be approximately $175 million."

Competition

Actuant's competitors include Kennametal (NYSE:KMT) and Parker-Hannifin Corporation (NYSE:PH). Here is a table comparing these companies.

Company ATU KMT PH Industry Average (Diversified Machinery)
Market Cap: 2.41B 3.06B 14.24B 882.77M
Employees: 6,700 12,932 59,331 3.20K
Qtrly Rev Growth (yoy): -0.20 -0.06 -0.03 0.12
Revenue: 1.60B 2.66B 13.00B 1.32B
Gross Margin: 0.38 0.33 0.23 0.31
EBITDA: 275.74M 446.86M 1.77B 137.30M
Operating Margin: 0.14 0.13 0.11 0.07
Net Income: 100.39M 228.49M 979.23M N/A
EPS: -0.61 2.81 6.43 0.79
P/E: N/A 13.81 14.85 14.63
PEG (5 yr expected): 1.38 5.94 2.12 1.22
P/S: 1.50 1.15 1.10 0.82
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Actuant is trading above the industry average P/S ratio, which could explain some of the insider selling.

My analysis

There have been three different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. The company has an insider ownership of 1.80%. The stock is trading at a forward P/E ratio of 16.34. The company has a book value of $14.11 per share and the stock has a dividend yield of 0.12%. Before shorting this stock, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in CBI over 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.