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Sreeni Meka holds a Masters degree in Mechanical Engineering, an MBA in finance and 2009 CFA level 2 candidate. He is a strong believer in the Buffet-Graham value investing philosophy. He has been actively investing for the past 15 years, predominantly in the US and other matured markets abroad.... More
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  • Carlisle Companies Inc: Rebound with economy 0 comments
    Jul 31, 2009 01:01 AM | about stocks: CSL
    As market started turning back naturally it is inspiring many investors, traders and fortune tellers with crystal balls. I would rather not forecast what S&P 500 going to be by next year or two, but I can certainly say we are almost at end of the recessionary period. Housing market appears to be bottomed out in many markets; according to realty.org, first quarter median house value in US is at $169,000 which I believe  a healthy price for home buyers. Though it feels bad to see your own price decline in value, but is a well needed correction.  Consumer revolving credit declined from the peak $961 Billion in 2008 to $928 billion and is in declining path.  Savings (both M1 & M2) have improved from $7.2 Trillion from early 2007 to $8.4 Trillion dollars.   In First quarter of 2009, U.S. current-account deficit decreased to $101.5 billion, the smallest deficit since fourth quarter of 2001 ($154.9 Billion). As of May 2009, Manufacturing and trade inventories declined 8 percent to $1.368 Trillion from last year May inventory at $1.487 trillion. The latest numbers appears to be very positive,  probably we are at bottom of recessionary period.  However, historically markets turned around at the middle of the recessions with the anticipation of economic rebound. March 2009 bottom could be the lowest point for this market, however there may be occasional corrections and sell off s from now to next year.  Unemployment is at historical high, 14.7 million people (9.5 %) were unemployed as manufacturing, business services and construction industry shedding more workers.
    Source: Bureau of Labor Statistics However, unemployment trend still continue furthermore, even after economy picks up the heat. Traditionally employment numbers rebound six to nine months after market starts rebounding.  Since beginning of the recession in December 2007, 7.2 million people lost their jobs but the rate of job losses declining from December 2008.               
     Source: Bureau of Labor Statistics As consumer spending declined in this recessionary period, decrease in trade deficit, and government spending spurring aggregate demand and fueling the economy. Natural growth in population and young immigrant work force and productivity improvements mobilizing the economy, soon we may see improvement in GDP numbers. With short interest rates at near zero, Fed consistently increasing money supply by purchasing government bonds and mortgage-related securities. Easing on money generate aggregate demand, but  the negative consequence is we will have to battle with inflation as economy picks up the speed in late 2009 and early 2010. As economy start rebounding, there are certain companies’ benefits from economic expansion; one of them is Carlisle Companies Inc. Carlisle Companies Inc (CSL): 

    Carlisle companies Inc is a diversified manufacturing firm consisting seven active operating companies broadly categorized into construction materials, transportation products, applied technologies, and specialty products, had around 11,000 employees. The core strength of this company is its diversity.

    Half of its revenue comes from construction segment, which include thermo plastic polyolefin (TPO) roofing systems, PVC products and energy efficient roofing systems. Transportation segment contains tire and wheel business and specialty trailer business and has manufacturing locations both US and China.Applied technologies segment include commercial food service business serving restaurant, hotel, hospitals.Specialty products division include diversified portfolio of products including off-highway break systems to refrigerated truck equipment.
    Sales:
    After last quarter results, Carlisle sales for pat 12months reached at $2.5 Billion dollars and revenue continuously growing at 10 to 12 percent rate.

     
    Higher Margins:
    Carlisle maintains high gross margins and operating margins. Even in down markets CSL able to manage higher margins though sales declined past six months.

     
    Healthy Financial Ratios: Carlisle maintains 18 percent ROE and 9 percent return on assets, and maintains cash conversion at 86 days on average.

    Solvency Ratios:
    Carlisle has current ratio of 2.5 from last quarter results; on average it maintained safe short-term solvency current ratio of at least 2.0 or more for past five years.  Carlisle reduced its long-term debt to 14 percent to its equity, on average it maintained 17 times of interest coverage. Carlisle has $1.04 cash per share and last year it generated $3.00 free cash per share.

     
     

    It’s a wonderful business with sound financial background and diversity of its operations, Carlisle appears to grow healthy as economy rebounds. Historically Carlisle rebounded and grew faster than economy right after past three recessions. Certainly, we can anticipate same kind of return for Carlisle this time around also as manufacturing, construction and transportation spending picks up from both private and government sectors.
     
    Disclosure:  Long on CSL since May 2009.
     
     
     
     
     
     
     
     
     
     
     

    Stocks: CSL
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