Manitowoc: Building Opportunity on Other People's Doubts

Manitowoc (MTW), one of the leading construction equipment firms in the world, has consitently produced stellar results. Management has achieved a 28% EPS growth in the past two years and been one of the prime benefactors of the global construction booms. The company's crane's have received rave reviews from a variety of different publications and allowed the company to consistently gain market share; it has done a particularly good job on positioning itself in emerging markets such as India, China and the Middle East.

MTW is has come in 50% off its highs, mainly due to doubts over its recent acquisition of food equipment maker Enodis. Some people have contended that the acquisition is not in line with the company's core competence and has overlevered the firm.

Since when does a company not deserve to diversify its businesses. While food equipment is certainly not cranes, maybe there are synergies that management thinks it can exploit? Agriculture, as far as I recall, is doing quite well, so why not add another growth business. MTW is known for engineering great equipment so why not seek to apply the same expertise to a different field. Maybe management's long-term goal is to steal some market share from Deere (DE)?

People have been way to doubtful of management, which is quite perplexing in light of the fact that the company has beaten earnings and raised guidance virtually every quarter in the past two years. The company is set to report earnings on April 28th and I expect the stock to trend higher significantly after the report. Despite the acquisition, S&P has maintained a strong buy rating on the stock with a price target of $61. The risk reward on this stock is way too good to pass up.

Other people's doubts are your opportunity to buy a best of breed company at a troth valuation.

Disclosure: Author has a long position in MTW

Comments

[matt123]

Enodis manufactures walk in refridgerators, ovens, and ice machines. Hardly a way to gain exposure to agriculture. Actually, they have now gained exposure to the restaurant business (at a 72% premium!) which is having major issues right now. Will this acquisition diversify its business? In the long-run, probably. Food service will now be more like 30-40% of the business up from 15%. Unfortunatlely, people who invested in this stock bought it as a way to play the global infrastructure boom (cranes), not as a way to gain exposure to food services.

[Vince]

This is hardly a departure from current business plan. Manitowac already has 11% of their revenue (per S&P) from their foodservice division, Enodis should only enhance that away from current beverage dispensers and fridges.

[bluemuthukrishnan]

The point of the acquisition I think is to have an offsetting business when the global crane demand cycle dips. What will MTW fall back on during the lean years of construction? Their existing expertise in food manufacturing equipment seems a logical base to build upon. And Enodis is a great company to own with some spectacular growth in recent years. (I am long on MTW).

[Jake2]

Too much wishful thinking here, not enough analysis.

[spbigger]

they already have an International presence in the food equipment business. This purchase only enhances it. Between the food equipment, the shipyard, and the mining equipment, they are more diversified than many companies. they are predictable and steady--one of the better companies to own. Why should they branch out into something more Ag. related as some have mentioned? These fast-growing areas are only a small part of the world of companies. MTW is a proven leader with all of their areas of production. According to the logic I see here. IBM, Microsoft and Nokia should start selling fertilizer. The writing here arre certainly an unmentionalble form of fertilizer.

Sam

[kvkwn]

Manitowoc shouldn't acquire Enodis. It is a clear departure from their core businesses.

Watch out the size of the acquistion. The acquistion reqiures over half of the entire share capital of MTW.

Beware of dilution effect for profit for possible rights issues or preferential shares/bond issuance.

This stock should be avoided for the coming 6 months.

[Stockpickerforum]

Spbigger, first make sure you are able to compose a grammatically correct sentence, then start thinking about criticizing this article. Your analogies are not valid at all.

Matt- what the hell is the point of your comment?