According to Standard & Poor's, Carlisle (CSL) is a diversified manufacturer of rubber roofing and insulation, small tires and wheels, heavy duty braking systems, foodservice plastics and specialty wire. Carlisle is a Dividend Achiever that has increased its dividend every year, for at least 28 years in a row, at a 7% compounded annual growth rate.
Carlisle is trading at $32.28. The stock currently trades at 7.73 times 2007 cash flow with a price/earnings ratio of 17 and 0.65x price to sales. According to Morningstar, Carlisle has a fair value of $46. Standard & Poor's places a conservative 12 month target price at $40. Using the conservative valuation of the two, there is at least 20% upside to Carlisle.
Using the Valueline estimates, Carlisle should be trading at 11x cash flow, which brings the upside to $45.65. I agree with the Valueline upside target and I’ve placed a downside price of $22. This figure is based on my analysis of the company discounted cash flow model.
The next issue is why the stock has been declining since October 2007. Further research unveiled a loss of $1.01 per share in the first quarter which, according to the company, was from after-tax impairment charges of $89.5 million, or $1.46 per diluted share, related to Carlisle’s power transmission belt business and on-highway brake business reported in the Specialty Products segment.
In addition, Carlisle announced on April 24 that it will sell the specialty product group. The revenue from this segment is 12% of total corporate revenue, but contributes only 5% of operating income. Disposition of this business should allow management to concentrate on segments such as construction materials, which account for 47% of sales but 57% of operating income. Due to higher input costs (rise in commodities), the margins have been hurt in such segments.
Carlisle, in my view, has been oversold and mispriced. The stock has been sold off hard and is currently trading more than 60% below its high and within 10% of its low. Margin contraction, along with a one time charge, have created a great opportunity for you to research more into Carlisle.
Disclosure: Author has a long postion in CSL