John Bean Technologies (JBT) is a unique small-cap company. What attracted me to this company was its ability to generate what I would describe as "recurring revenue." The concept of recurring revenue is always attractive, because it gives the company stability. As an investor, I am looking for opportunities to either increase the value of my portfolio or generate income.
The company has built a very strong allegiance with its customers:
- Installing more than 40,000 pieces of food processing equipment
- Over 9,000 airline cargo loaders
- 7700 passenger boarding bridges and many other installations
This shows the company has a good base to generate higher-margin recurring revenue.
In 2012, 45% of the company's revenue came from three recurring revenue streams:
- After-market propriety parts
- Long-term equipment leases
- Airport services
Food Tech business- growth drivers for this would be equipment replacement cycles and strong protein demand in emerging markets.
Arrow Tech business- business comes from terminal expansion projects in developing markets and new airports in emerging markets. There is a growing demand for deicers and mobile ground power units for airplanes.
- Terminal expansion projects
- New Airports in emerging markets
- Mobile ground power units for airplanes
The one thing the company has going for it is that it has what I would describe as a "durable advantage." Once it has installed a product, unless JBT is really inept, it is highly unlikely that customers are going to switch based on price alone. JBT's products are to critical to the operations of its clients. This translates into steady income along with the opportunity to up sell through service.
If you're a citrus grower processing a million gallons of orange juice at harvest time or if you're an express delivery company using JBT's loaders to keep your airport logistics running efficiently, quality and reliability are the main considerations.
Long Term Income Investment
If I am looking at the stock from an income investor's point of view, my goal is to live off what it brings in. Is this company the best value for my money as an income investment?
John Bean declared its fourth quarter 2013 cash dividend of $0.09 per share of outstanding common stock. The dividend will be payable on December 30, 2013 1.3%
I created a little chart comparing companies in similar industries. I took the (EPS ttm) and present price and asked myself the question: if I had $10,000 to invest, what would my annual return be if I received the (EPS ttm)? Of the five companies I chose, John Bean Technologies came in last when I calculated annual income like this. I guess if I were an income investor, this would not be one of my first choices. There are other places that I can make more money with my investment. John Bean does not look like my first choice as an income investment.
Would the company be a good value investment?
John Bean Technologies is in the "Diversified Machinery" industry. I am looking at the company as an investment, and I need to look at it from different ways of investing to see if the company is a good candidate.
I am looking at the company side-by-side with its industry from this Yahoo Finance chart. Is the company going to be a good value investment for me?
When I look at the company's growth estimates next to the industry as a whole, it appears to underperform and is projected to do the same next quarter, next year and projected into the next five years.
Comparing the Price/Earnings ratio to the industry, I'm not sure if the industry is just overpriced or JBT is undervalued. There's quite a difference here, and it may be reflected in the company's expectations of growth compared to the industry as a whole.
Something that gives me a little bit more insight is the PEG ratio. I want this to be lower end JBT was much higher. Almost 15%, than the industry average. This does not excite me as a value investor.
Another concern I have is how the stock has grown since the end of summer. While the S&P 500 has grown at just under 20%, JBT has done very well growing just about 30% since its low in August. 30% growth in the last four months is a concern.
I am happy for the company that it has grown so much, but if I am viewing company through the eyes of a value investor, I'm wondering if my timing is off. I am not sure of the company right now. It may have grown too much in the last few months for me to have a good entry point right now.
From my observations, John Bean Technologies appears to be a solid company with a strong income base. I do not see the company as a good income investment. Although it has grown 30% since the beginning of the fall of this year, I am concerned that it may have reached its peak.
The stock is presently trading at 29.38, and I have seen some "Intrinsic Value" formulas that place the intrinsic value of the stock at 33.09. Even though the price of the stock is below intrinsic value (per the formulas), it is still too close to the price of the stock, because it doesn't give me any "margin of error" play.
I do not like the stock as a long-term income investment. The stock has not given me any strong support as a top-notch value investment either. The only possible approach I can see to investing in John Bean Technologies would be as a growth investment. With a 30% growth rate as of late, I am not sure how much wind it has left in its sales.
It could perform well in 2014 and continue to move up as the markets are expected to. I believe this is a good argument. As to how far it will move, that I am not sure. I have read numerous articles from analysts that believe 2014 should be a good year for the market, just not as good as 2013. If I would take the same outlook on JBT, I would surmise that the company will continue to grow in 2014, but not as strong as 2013.
Author's Note: the comparison chart that was made took information from "Yahoo Finance" while other quarterly performance numbers on John Bean Technologies was taken from its website.