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Value Reviews

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

Encana Corporation
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

Griffon Corporation
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

Patterson-UTI Energy, Inc.
Drilling companies continue to struggle and Patterson-UTI is no different. The company has moved aggressively to lower debt (down 30% y-o-y), as well as cut its dividend (down 60% y-o-y) and reduce its share repurchases (down 55% y-o-y). In addition the company is still working to acquire businesses in an effort to help grow earnings (down 55% y-o-y) even it is paying for much of these acquisition with company stock. In the end, management is doing what it can trying to weather the current oil pricing storm. I believe the company will survive will survive going forward, I just don’t see share prices rebounding much above $35 for the foreseeable future.

Patterson-UTI Energy, Inc. (Nasdaq: PTEN) – FYE 12/2016 – FAIRLY VALUED – The stock is currently trading at levels in line with my $28 fair value estimate – Please See Linked Worksheet

Rowan Companies, plc
It was good to see that y-o-y earnings grew 58% during this extended down market for drillers.The company made substantial captial outlays during FY 2014 taking delivery of 3 of 4 new drill ships, which are starting to generate returns in the current fiscal year. The company also entered into a 50/50 joint venture during FY 2016 with Saudi Aramco. The new venture will own, operate, and manage offshore drilling units in Saudi Arabia and will commence operations during FY 2017. Free Cash flow grew during the year with a y-o-y increase of 302% and Tangible Book value remained near $40. Going forward, the stock may perform well over the coming several years, especially as the JV arrangement starts to yield results.

Rowan Companies, plc (NYSE: RDC) – FYE 12/2016 – UNDER VALUED – The stock is currently trading at levels below my $128 fair value estimate – Please See Linked Worksheet

Air Products and Chemicals,Inc.
When y-o-y earnings increase by 213%, y-o-y debt falls by 24%, y-o-y free cash flow grows by 12%, the TTM PE is 11, and the current PE is 12, stockholders and wannabes should be happy, right? Maybe. What puzzles me, and this where due diligence comes into play, is why the company’s backlog of sales orders fell y-o-y by 55%. Couple this with y-o-y receivables decline of 6% and that the company has outstanding taxes of $877 million when it sits on $3.7 billion in cash and it just makes me wonder what managment is thinking. Is there some cash crunch coming? Is competition ramping up? Is there a take over play forming? In the end it may all be me just thinking out loud. But since this one is gonna require some cash to add to a portfolio, why not think out load?

Air Products and Chemicals,Inc. (NYSE: APD) – FYE 09/2017 – UNDER VALUED – The stock is currently trading at levels below my $333 fair value estimate – Please See Linked Worksheet

Ashland Global Holdings, Inc.
Okay I admit it, I have never really been an Ashland fan and now that they have spun off Valvoline, it just reminds me why I am not a fan. In a nutshell it comes down to management. I just don’t believe, and this is very subjective I know, that current management is up to the task of managing the company. I understand that FY 2017 results were skewed somewhat because of the Valvoline spin off. But even allowing for that, I just don’t believe management “gets it”. Now that Valvoline is no more, and the company’s financial performance is laid bare, it is going to be interesting to see how the company fares in the global marketplace. Personally I think it is going to falter, leaving many investors wondering why they still own this stock?

Ashland Global Holdings, Inc. (NYSE: ASH) – FYE 09/2017 – OVER VALUED – The stock is currently trading at levels above my $3 fair value estimate – Please See Linked Worksheet

Cabot Corporation
I like what the company does, that they are a picks and shovels company. I don’t like that the company has a 49% interest ($15M) in a carbon black affiliate in Venezuela and I don’t like that the company has exposure in connection with a safety respiratory products business that a subsidiary company once owned, and I wish there were additional information regarding the shutdown of the company’s carbon black facilities in Merak, Indonesia. My wonder is around exposure to future litigation by the Indonesian government. These things aside, FY 2017 was a good year for the company with y-o-y earnings growth of 61%, y-o-y debt growth of less than 1%, and y-o-y free cash flow growth of 20%.

Cabot Corporation (NYSE: CBT) – FYE 09/2017 – FAIRLY VALUED – The stock is currently trading at levels in line with my $70 fair value estimate – Please See Linked Worksheet