Landauer Has Been Sufficiently Rewarded by the Market

by: Ockham Research

Landauer (NYSE:LDR) has had one heck of a run. In the last 52 weeks, the stock is up 41%, and considering this market, that is really saying something. From everything we are looking at, this small-to mid-cap ($684 million market cap) has done a wonderful job of growing sales and earnings in an incredibly difficult market. But when we look at the current sales and earnings numbers (despite how stellar they are), we just have to rate LDR as overvalued at this point.

Take a look at the scatter plot [click to enlarge], which outlines where LDR falls against its peers in the last quarter. The Y-axis demonstrates the 13-week return for each company, and the X-axis is where we rate their valuation. Amazingly, every one of the competitors for LDR (as defined by Google Finance) is located in the bottom right quadrant signaling a loss but improving valuation, while LDR is all alone in the top left quadrant signaling a gain, but deteriorating valuation.

Again, management should be commended for a great job of navigating these waters. When we break down the ROE for Landauer, the trend is equally impressive. With a recent ROE of +32.90%, management is firing on all cylinders. The radiation monitoring business, in general, has seen its share of difficulty, but LDR continues to show strength.

Bottom line is that at a certain point, your company can reach a hyper-inflated stock price regardless of how well you run it. Management may be able to continue great growth and justify the current stock price level over the next few quarters, but at $72.37, it’s just a bit too pricey. For example, LDR’s Cash Earnings ratio per share has fluctuated between 14.28 and 19.53 over the last ten years' historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where LDR is with respect to prior business periods.

So what does this tell us about LDR in particular? Basically, we would value the current level of Cash Earnings per share (which is at 22.01) as significantly overvalued. We can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded LDR with a higher stock price.


From the company’s December earnings release:

[President and CEO] Saxelby continued, “We believe the progress we have made this year amid an uncertain economic environment highlights the sustainability of our product offering and the continued global awareness of the risks and threats of radiation exposure. Our strong cash generation, financial discipline and effective cost structure support our current market opportunities and provide us with attractive growth prospects in the foreseeable future.”

We commend LDR for a great quarter and impressive track record for creating value. At this point, however, the stock needs to pull back to a more attractive valuation.