High Quality French Blue Chip St. Gobain Hardly Gets A Nod In The U.S.

| About: Compagnie de (CODGF)


Gobain trades at a reasonable PE of 21.7 and has a 2.48% dividend yield.

The company is one of the top manufacturers of glass in the world.

The market cap is $31 billion and the stock is barely followed in the U.S.

St. Gobain (OTCPK:CODGF, OTCPK:CODYY) is a high quality, French manufacturer of glass and other building products that hardly gets mentioned in the U.S. The company can trace its roots back to Palace at Versailles. You might want to pay attention to this under followed blue chip with a $31 billion market cap.

The stock trades for €50.90, there are 557.16 million shares outstanding, and the market cap is €28.4 billion ($31.2 billion). It takes $1.10 to buy one euro. According to Morningstar, earnings per share were €2.35 and the stock trades at a price to earnings ratio of 21.7. The dividend is €1.26 and the dividend yield is 2.48%.

Trailing twelve month sales were €39.09 billion ($43 billion). Sales were up a smidge over the last few years but down from €43.2 billion ($47.5 billion) from 2012. Return on equity is 6.95% which isn't anything to brag about. Operating margins were 5.89% which again, is not that special.

What is impressive is that since 2012, sales are down but earnings are up. In other words, management has found ways to cut expenses. Another plus is that seven million shares were bought back. Free cash flow (according to the company) was €1.37 billion ($1.5 billion) last year. The free cash flow yield would be 4.8% which isn't bad.

25% of revenues come from France, 42% Western Europe, 13% North America, and 20% Asia and emerging markets. Of that, 25% is "Innovative Materials", 28% Construction, and 47% Building Distribution.

St. Gobain manufactures flat glass for the automotive and buildings industries. Its high performance materials are polymers, ceramics, and abrasives. Its construction products include: acoustic and thermal insulation, wall facings, roofing, interior and exterior building solutions, and piping. The building distribution division distributes tiles and is number one in Europe in heating and cooling. Its products can be found in the World Trade Center, the Mars Curiosity Rover, Paris' Pompidou Center, the Statue of Liberty, the Kimmel Center, and the Comcast towers

Holding company Wendel (OTCPK:WNDLF) owns 6.4% of shares but receives 11.1% of voting rights. Funky European dual shareholding structure that we don't like. Since we last wrote about St. Gobain, two years ago, Wendel has sold off a lot of shares. Gobain is still trying to buy out Swiss adhesive manufacturer Sika (OTC:SKFOF). Management has made an offer to the founding family of Sika.

The balance sheet is strong. There is €3.7 billion ($4 billion) in cash and €4.9 billion ($5.4 billion) in cash. The liability side shows €5.8 billion ($6.4 billion) in payables and €8.8 billion ($9.7 billion) in debt.

Since we last wrote about Gobain on Seeking Alpha two years ago, the market cap has increased 17.8%. That's not counting dividends. That's not a bad rate of return. At the time, we were not too excited about the stock because we were not too excited about European construction. We're still not.

The valuation isn't bad. A PE of 21.7 and dividend yield of 2.48% is pretty decent in today's stock market.

The European Aggregates Association predicts 2% GDP growth for Europe. The study notes that manufacturers of "green" building materials will continue to do well. The study also noted that the influx of immigrants into Europe will portend good things for the construction industry. If this trend continues, it's good for Gobain's stock price.

Gobain is a high quality blue chip that is under followed in the U.S. It's hard to believe that our entry two years ago is about the only thing that you'll find on a company with a $31 billion market cap. You hear plenty about PPG (NYSE:PPG) and 3M (NYSE:MMM) but very little about Gobain. If Europe keeps building, Gobain's stock goes up.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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