Woodward Governor Company, Inc.
The company again turned in very good performance of FY 2017 with increases in sales, earnings, and free cash, and decreases in debt and the cash conversion cycle. What I keep wondering about is the need to continue the joint venture agreement between the company and GE Aviation. Since inception in September 2016, the JV has contributed roughly $117,000 in net sales to the company. Doesn't seem like much considering the accounting and legal expenses to maintain it.
Woodward Governor Company, Inc. (NYSE: WWD) - FYE 09/2017 - OVER VALUED - The stock is currently trading at levels above my $50 fair value estimate - Please See Linked Worksheet
I went back in time with this one and looked at the investment returns from 2010 through 2016, and was less than impressed. Had an investor invested $10K in shares of stock at the end of the day on 12/31/2005 and held it until the end of the day on 12/31/2010, adding in price appreciation and dividends, their return would have been a loss of 7%. Had they followed that strategy year after year from 2011 through 2016, their return would have averaged a negative 12% year over year. In the end, earnings and free cash flow are not growing, but then again neither is debt, which I guess is something to be thankful for. Analysts are expecting FYE 2017 be a good year for the company and it might well be. But I think history will repeat itself and in the end, long term buy and hold investors are going to get slammed.
Encana Corporation (NYSE: ECA) - FYE 12/2016 - OVER VALUED - The stock is currently trading at levels above my $9 fair value estimate - Please See Linked Worksheet
My issue with the company is that the businesses they own are primarily consumer oriented and as such the majority of their income is dependent on consumer discretionary spending. For FY 2017 the company sold off one holding and acquired a different holding and the only thing that changed was Sales increased 3% and Cost of Sales increase 4%. Impressive. There is a line in the company's 10-K filing that says, "We are focused on acquiring, owning and operating businesses in a variety of industries". I guess their definition of a variety of industries and mine differ quite a bit.
Griffon Corporation (NYSE: GFF) - FYE 09/2017 - FAIRLY VALUED - The stock is currently trading in line with my $21 fair value estimate - Please See Linked Worksheet
Sally Beauty Holdings, Inc.
The company had an average year with Sales flat and Cost of Sales down roughly 2%. Y-O-Y Free Cash Flow increased by 36% and the company still maintains a negative Book Value, Tangible Book Value, and Net Current Asset Value. The company was also able to increased Deferred Taxes by roughly 5% and spent $346M buying back stock while not spending a dime on dividends. Management continues with its reorganization plans for both domestic and international operations, but even with that, I simply don't see much of an addition to the bottom line. So while I may have determined that the stock is under valued, I simply don't find any reason to want to own it.
Sally Beauty Holdings, Inc. (NYSE: SBH) - FYE 09/2017 - UNDER VALUED - The stock is currently trading below my $43 fair value estimate - Please See Linked Worksheet
Kulicke and Soffa Industries, Inc.
During FY 2016 management implemented a restructuring plan attempting to streamline international operations in an effort to achieve cost-reduction, and improve productivity and efficiency. That restructuring effort continued into FY 2017. What can I say? Basis the company's FY 2017 numbers, the plan worked great! FY 2017 revenue increased 29%, which translated to a 214% gain net earnings, 6% of which came from income taxes. Debt, what little there is, was reduced 4%, and management key performance indicators (KPIs) increased by 57%. Had an investor bought $10K worth of stock at the end of the day on 09/30/12 and sold at the end of the day on 09/30/17, that investment would have translated into a year over year average gain of 21%.
Kulicke and Soffa Industries, Inc. (Nasdaq: KLIC) - FYE 09/2017 - UNDER VALUED - The stock is currently trading below my $47 fair value estimate - Please See Linked Worksheet
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.