Buy Cooper Industries On A Pullback To $55
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Cooper Industries (NYSE: CBE) manufactures and markets electrical goods and services. It makes goods from plugs to lighting, circuit breakers to fixtures, fittings, and fuses for household, business, and industrial use.
It has also been expanding its energy management solutions segment, and has recently added a fifth controls related acquisition to its business. This purchase is for an undisclosed sum, and brings into the Cooper fold the aptly named Fifth Light Technology Ltd. Fifth Light has installed over 100,000 control devices in locations across North America over the last few years.
It has also had its Halo H4 LED Adjustable Gimbal Series named as a winner in Electronic House magazine’s 2012 Product of the Year competition.
On January 25, Cooper reported record results. Earnings per share, of $1.00 for the quarter, beat market estimates of $0.95 by some margin, and were 18% above the same period last year. This was the eight consecutive quarter of double digit earnings per share growth.
Full year earnings per share of $3.87 on continuing operations beat the market estimate of $3.81, while quarterly revenue increased by 9% year on year.
Whilst the company is bullish of the future it has noted increasing competition form ABB (NYSE: ABB), General Electric (NYSE: GE), and Stanley Black and Decker (NYSE: SWK). Perhaps just as large a risk is the fact that the company makes so much of its revenues and earnings from its operations abroad. Currency could impact negatively.
It may be this that has prompted both UBS and Longbow to downgrade Cooper Industries shares to neutral from buy.
At $60, Cooper shares trade on a price to earnings ratio of 12.35: lower than ABB’s 16.20, GE’s 16.2, and Stanley Black and Decker’s 18.6.
The dividend of $1.16 last year means the shares yield 1.90%, below the 3.10% of ABB shares and the 3.6% of GE shares. Stanley Black and Decker shares yield 2.20%.
Profit margins at Cooper currently run at 15.29%, better than the less than 10% of ABB, GE, and Stanley Black and Decker.
Looking at the 12-month chart, it may be that the share price needs to retreat before it can move forward again. An entry level of $55 would give a reasonable comfort factor on the risk of a further downside, whilst having exposure to this well managed company and the earnings rises that it seems capable of producing quarter on quarter. I recommend a buy on a pullback to $55.
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