Haynes International: Has Cramer Found a Winner?

| About: Haynes International, (HAYN)

Like him or hate him I think Jim Cramer may have found a winner in Haynes International, Inc. (NASDAQ:HAYN).

Haynes International, Inc. is a leading developer, manufacturer, marketer and distributor of technologically advanced, high-performance alloys, primarily for use in the aerospace, land-based gas turbine and chemical processing industries. The Company’s customers include General Electric Co. (NYSE:GE); Pratt & Whitney; Rolls Royce plc (OTCPK:RYCEY); The Boeing Co. (NYSE:BA); SNECMA; E.I. DuPont de Nemours & Co.; The Dow Chemical Co. (NYSE:DOW); Siemens Westinghouse (sI); Solar Turbines, Inc.; British Petroleum p.l.c.; Celanese AG (CZLNF); and Eli Lilly and Co (NYSE:LLY).

HAYN is in the same space as huge winners over the last year Titanium Metals Corporation (TIE), RTI International Metals (NYSE:RTI) and Allegheny Technologies Incorporated (NYSE:ATI). On March 21, Mr. Cramer said:

Haynes is the cheapest stock in a sector that is red hot, the performance metals business. The demand for its product is only exceeded by demand for its stock. Analysts are looking for a new name in this sector and Haynes is it. It is a buy.

Recently, HAYN effectively IPO’ed on the NASDAQ (previously it traded very thinly on the pinks sheets) through a deal run by J.P. Morgan that priced at $65 and opened well above that for trading. Right now nobody knows the Company, but I would look for the stock to become much more well known as the book runners on this deal start to roll out coverage in the near term and Cramer undoubtedly continues to plug the stock.

Now lets looks at the financials (fiscal year ends in September) and some interesting facts about the company:

Net revenues increased by $109.4 million, or 33.7%, to $434.4 million in fiscal 2006 from $325.0 million in fiscal 2005.

Cost of sales as a percentage of net revenues decreased to 74.9% in fiscal 2006 from 88.8% in fiscal 2005.

Operating income in fiscal 2006 was $65.9 million compared to $0.1 million in fiscal 2005.

Net income increased by $39.6 million to $35.5 million in fiscal 2006 compared to ! net loss of $(4.1) million in fiscal 2005.

For the three months ended December 31, 2006 revenue and diluted EPS grew to $120.4 million and $1.27 from $94.4 million and $0.33 for the three months ended December 31, 2005. If you annualize this quarter you get EPS of $5.08 which I think is well below what HAYN should do in fiscal 2007 based on the growth it is experiencing. I think HAYN could make close to $6.00 a share in 2007 versus the $3.46 it made in fiscal 2006. If that happens I think the $70 price tag HAYN currently sports will look silly in comparison to where it will be trading as peers TIE and RTI trade at PE multiples of 20 to 30. If you apply a 20 PE to even a low estimate of $5 in EPS we should see HAYN trading at least around $100 a share. If you take my estimate of $6 and apply the 20 PE we are looking at a $120 stock.

Here are a few tidbits that I think are interesting from the pros! pectus as it relates to growth opportunities for the company including an agreement with TIE:

1. They Company recently opened a service and sales center in China, the first service and sales center operated by any manufacturer of nickel- or cobalt-based alloys in China. This is one of many non-US growth opportunities the Company is pursuing as foreign revenues continue to grow year over year on an absolute dollar basis.

2. The end markets for HAYN look strong which should continue the growth. The primary industries are aerospace, chemical processing and land-based gas turbine industries.

3. On November 17, 2006, HAYN entered into a 20-year agreement to provide conversion services to Titanium Metals Corpo! ration (TIE), or TIMET, for up to ten million pounds of titani! um metal annually at prices established by the terms of the agreement. TIMET paid HAYN a $50.0 million up-front fee and will also pay HAYN for its processing services during the term of the agreement at prices established by the terms of the agreement. TIMET may exercise an option to have ten million additional pounds of titanium converted annually, provided that it offers to loan up to $12.0 million to HAYN for certain capital expenditures which would be required to expand capacity. Besides being a great business agreement for HAYN, I think when traders connect TIE and HAYN momentum buying will follow. Also, could TIE look at HAYN as an acquisition candidate at some point in time.

One final note for traders is that the stock only has 11.4 million shares outstanding after the recent offering, with the actual tradeable float being much smaller than that as HAYN is mostly owned by large investment firms. This means this stock should really move when it get! s noticed.

I think Cramer is right on this one and HAYN will be a big winner when it is discovered.

Disclosure: Author has a long position in HAYN

HAYN 1-yr chart


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