Diversified Machinery

Ampco-Pittsburgh Corporation (NYSE: AP) – FYE 12/2016

Crane Company, Inc. (NYSE: CR) – FYE 12/2016

Cummins, Inc.
The impact of the Tax Cuts and Jobs Act of 2017 is clearly in play when it comes to Cummins, increasing their y-o-y effective tax rate from 27% to 58%. This increase impacts investors that focus on earnings as the central valuation metric. In this instance, my valuation for the company was impacted a great deal because instead of using earnings of $7.57 (assuming a three year averaged tax rate of 26.88%) per share, I had to use $3.13. Welcome to the repatriation of income.

For most companies in this situation, the final tally for repatriated income is still being finalized with any adjustments for FY17 taxes applied in FY18. That of course will have somewhat of an impact on FY17 earnings and my valuations, but for now, I have to go with what is on the books and not what may be or would have been since using those “tax adjusted numbers” would make my valuation a Pro Forma valuation, something many of us learned about first hand in the late 1990s.

The diesel engine maker’s sales saw a y-o-y increase of 17%, but because of the repatriation of income taxes, earnings fell by 56% and free cash flow fell by 49%. More normalized earnings would have seen the company with the same y-o-y sales increase, but earnings would have increased by 7% and free cash flow would have increased by increase of 9%. Regardless of the effective tax rate used, debt grew by 8%.

One event I found significant for FY17 was the company’s 50% joint venture with Eaton Corporation Plc (NYSE: ETN). The joint venture is going to design, assemble, sell and support medium-duty and heavy-duty automated transmissions for the commercial vehicle market. This should allow the company to increase sales and earnings while sharing the associated financial risks.

So what’s this deal? My short-term (3-6 week hold) target price for the stock is $187.52, with an initial trailing stop at $166.99. My current future target price for the stock (a 5 year hold) is $278, which is an average annual return of 13%. A prior five year hold of the stock would have returned an average of 13% per year. Please remember that any investment has the potential for loss and that past performance is no guarantee of future results.

Cummins, Inc. (NYSE: CMI) – FYE 12/2017 – OVER VALUED – The stock is currently trading above my most recent $36 fair value estimate – Please See Linked Worksheet
Posted on 02/26/18

Dover Corporation
I looked through the financials and read through the company filings just in awe of the y-o-y performance the company had during FY17. Sales growth of 15%, earnings growth of 53%, free cash flow growth of 31%, and a net reduction in debt of 1%. Now that, in one helluva year. Unfortunately, the markets have priced this information into the current stock price. [Sigh] In May 2018, the company will be spinning off its well site business into a new a new company to be named Apergy. The company will be a publicly traded company. I have not had an opportunity to see how the loss of the well site businesses will impact Dover’s financials, but savvy investors may want to take the time to do just that. I had a chance to take a position in Dover back in 2012 which I passed on. Dumb me. Had I gotten in at that time, the investment would have generated an average annual return of 18%. Figures I would pass.

Dover Corporation (NYSE: DOV) – FYE 12/2017 – OVER VALUED – The stock is currently trading at levels above my most recent fair value estimate – Please See Linked Worksheet

Ingersoll-Rand Company, Ltd. (NYSE: IR) – FYE 12/2016

Roper Technologies, Inc. (NYSE: ROP) – FYE 12/2017 OVER VALUED The stock is currently trading at levels above with my most recent $198 close target. Please See Linked PDF Worksheet

Posted on 04/30/18

SPX Corporation
The company is restructuring to lower costs having spun off their other businesses and consolidated operations into the current business model. Okay, I get it. But there were a couple of things that I didn’t get. The company manufactures stuff, metal stuff, pumps and valves and mixers and just stuff, but they spend just $0.46 per share on CAPEX. What amazed me about that number is after spending $0.46 on CAPEX, there is still $4.39 of Free Cash Flow left to pay dividends! Oh! wait. They don’t pay dividends. Hmm. I’m sure once the company gets itself all situated and restructured and eats a banana, they will do well. But with little spent on CAPEX, no dividends paid to shareholders and no apparent plan on how to spend its cash, I am having a hard time understanding just how they intend to compete, to grow the business, to increase shareholder value. Until I can figure that out, I will leave this one to the cake makers of the world.

SPX Corporation (NYSE: SPXC) – FYE 12/2017 – SELL HALF – The stock is trading at levels above my current $22 fair value estimate, but below my $36 close target – Please See Linked Worksheet

Twin Disc, Inc. (Nasdaq: TWIN) – FYE 06/2017 – Sell – The current market price is too high basis the current P/E, growth potential and balance sheet metrics. SEE RESEARCH NOTES

Please note that worksheets are updated basis the most current SEC 10-K ANNUAL filing.