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  • Market Highlights P&F Industries Corporate Governance Issue 0 comments
    Aug 4, 2014 12:09 PM | about stocks: PFIN, SWK, SNA, TST

    (click to enlarge)A couple of weeks ago, P&F Industries, Inc. (NASDAQ:PFIN) disclosed that its subsidiary, Florida Pneumatic Manufacturing Corp. has merged with Exhaust Technologies, Inc. (ETI). The surviving entity will be P&F Industries' subsidiary. The all-cash deal was valued at $10.38 million, including a working capital adjustment. ETI operates under AirCat products which engineers a series of pneumatic tools targeting the automotive market.

    P&F Chairman and Chief Executive Officer, Richard Horowitz, said that he is pleased with the outcome of the deal. He believes that the merger and acquisition will enhance P&F Industries' market position in the automotive air industry. It will also further expand the product offering in the sector. Given that the merger of the two entities is effective 1st of July 2014, the earnings of the acquired company, Exhaust Technologies, Inc. will be consolidated immediately.

    Buy Rating

    There are not many analysts covering the company. There are no consensus earnings estimates on the stock. Any surprises or positive developments will catapult its share price higher. In fact, the news surprised the market. Shares were up almost two percent the day after the announcement.

    Separately, financial media and research giant TheStreet.com (NASDAQ: TST) issued a "Buy" rating on the stock. It cited that the company has multiple strengths, which will offset its general weakness. These strengths include a solid financial position with manageable debt levels. In addition to the strong financial profile, its expanding profit margins and stable cash flow are strong catalysts to higher share price in the future.

    Year-to-date, its share price performance is slightly better than peers, with 13 percent gains. In contrast, tool maker Stanley Black & Decker, Inc. (NYSE: SWK) gained 7 percent and Snap-on Inc. (NYSE:SNA) added 9 percent to its share price.

    Share Price Overhang

    The company's share price has many overhangs. First, Timothy Stabosz, a 5 percent shareholder, filed an SEC filing and demanded that Directors Kenneth M. Scheriff and Jeffrey R. Franklin immediately quit the company's board of directors. The filing accused these two members of having succumbed to demands by corruptly and manipulatively backdating an unjustified pay increase for the CEO. The issue of corporate governance has taken a toll on the company's reputation. Mr. Stabosz further accused that both Scheriff and Franklin are in collusion with the CEO.

    Furthermore, the first quarter of the fiscal year 2014 results have been disappointing. The company reported revenues of $15.93 million, compared to the revenues of $20.71 million in the previous year. Net income came in lower also at 46 cents, against income of $62 million the prior period.

    Said acts will not benefit the shareholders of the company in the long-run. Eventually, this will give an impression to the market that management and the board of directors are enriching themselves at the expense of shareholders. Hence, share price gains have been limited despite positive developments.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: PFIN, SWK, SNA, TST
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