My last article was on 3M (MMM), an iconic business that has faltered of late. While conducting due diligence on that name, I stumbled across Carlisle Companies (NYSE:CSL), a dynamic mid-cap growth stock in the industrial space.
The firm's management is highly acquisitive, adding bolt on companies that seem to be incorporated rapidly and seamlessly under the Carlisle banner.
A review of Carlisle's product lines provides a laundry list of disparate devices and services; however, their common thread is that they serve niche markets, often have high margins and/or they are manifestly superior to competitors' offerings.
Unfortunately, a lion's share of the company's revenues flows from a single segment, and that business is adversely impacted by the current environment.
Consequently, I am providing a number of perspectives and related links from analysts in the affected industry. Although my fears were allayed, you may develop a contrary opinion once I've presented my findings.
Understanding Carlisle Companies
Carlisle utilizes robust M&A activity to grow the business at a rapid pace. In 2019 alone, the company acquired 8 businesses for $616 million.
While researching prior acquisitions, I learned the M&A centers on relatively small companies that fit well into the larger business. Since 2015, the company invested $2.4 billion in acquisitions, thereby improving ROE by more than 6%.
When investing it is common to see acquisitions result in onerous debt burdens and integration risks. Carlisle's reasonable debt levels and rapidly growing business are testimony to management's expertise.
The company operates in four segments, and here is where investors may find reason for caution.
Carlisle's Fluid Technologies (CFT) and Brake & Friction (CBF) segments provide 7% and 6% of operating profits, respectively. The CBF products are an example of how the company focuses on niche markets. CBF serves construction, mining, agriculture, aerospace, and military markets rather than consumer focused vehicles.
