Duerr AG Well-Positioned For Growth

| About: Duerr AG (DUERF)

Summary

Duerr is an auto industry play (60% of its sales are to automotive business customers).

Strong increase in incoming orders in Q1 2016 following decreased sales in 2015.

The acquisition of Homag, another market leader in the machinery industry, provides excellent market growth opportunities.

Duerr's profit margin is expected to grow up to 8% over the year.

The Duerr Group (OTCPK:DUERF) is one of the world's leading mechanical and plant engineering firms. Business with automotive manufacturers and their suppliers accounts for 60 % of its sales of almost € 3.8 billion. Other customer segments include the woodworking industry and the mechanical engineering sector as well as the chemical and pharmaceutical industries.

There are several reasons for Duerr to be well positioned and experience strong growth - which I believe, isn't reflected in the stock price yet. The stock price has been hit by recent worries about a Brexit and it consequences.

1. Increasing incoming orders

Duerr already had a strong increase in incoming orders in Q1 2016 - after decreased sales in 2015. Although growth in the automobile industry won't return to its full strength as in the years 2010 and 2011, it is expected to grow at 2% in 2016.

Regarding the development of the euro, a continuation of the recent depreciation will drive exports higher. Over 55% of its sales are generated in non-euro denominated countries. Duerr's profit margin is expected to grow up to 8% over the year.

Good economic data for the German manufacturing industry (mentioned in another article) - which accounts to 15% of Duerr's sales - is a key pillar for stable revenues in the future.

2. The acquisition of Homag

The acquisition of Homag - a market leader for woodworking machinery and systems - provides excellent market growth opportunities. Homag has a market share of 31%. One of its biggest customers is IKEA (about 5% of Homag's sales).

Growth drivers are global technology trends like mass customization and automation. A strong regional trend in China is the adaption of European furniture design.

Technicals

Duerr has underperformed its index over the last year. Currently struggling with a cross of the 200- and 45-day moving average, the stocks seems to have found a bottom. Supportive will be a stock price above 70, which would confirm a reverse head-and-shoulders pattern. My target price is the range of 80 to 90. The average target price is 80.90 or +22.2%.

Disclosure: I/we 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.

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