Is This NACCO's Spinoff Interesting?

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Shareholders of Hyster-Yale Materials Handling (NYSE: HY) must be quite happy when its share price climbed up consistently, from around $38 per share in the beginning of October 2012 to $55.50 per share. Even after a 46% advance, Hyster-Yale looks quite cheap with the valuation of only 9.5 times trailing earnings. Let’s take a closer look into the company to determine whether or not investors should get in Hyster-Yale at its current price.

NACCO’s spinoff

Hyster-Yale, incorporated in 1991, is considered a leader in designing and manufacturing of a comprehensive line of lift trucks and aftermarket parts under Hyster and Yale brand names. Actually, Hyster-Yale was spun off from NACCO Industries (NYSE: NC) in September 2012. The majority of its revenue, $2 billion, or 82% of its total 2012 revenue, were generated from lift truck sales while the aftermarket parts sales accounted for 13% of Hyster-Yale’s total revenue in 2012. The majority of its business was generated in the American region, with $1.56 billion in revenue. The second biggest region is Europe, contributing nearly $678 million in revenue.

Hyster-Yale’s lift truck business could be considered to be quite cyclical as its lift truck orders are dependent on its customers’ capital decision that somehow relies on the general economic activity level. Hyster-Yale reported that it has experienced and might continue to experience significant fluctuations in its net income and revenue.

Good growth, conservative balance sheet and high insider ownership

However, since 2010, Hyster-Yale experienced a good growth in its top line and bottom line. Its revenue increased from $1.8 billion in 2010 to $2.47 billion in 2012 while the profits rose from $32 million, or $1.94 EPS to $98 million, or $5.83 EPS in during the same period. Its cash flow followed the same rising trend. In the past three years, its operating cash flow nearly tripled to $128 million while its free cash flow grew from $35 million to $109 million. What interests me is the fact that Hyster-Yale has been growing the business with little leverage. As of December 2012, it had $341 million in total stockholders’ equity, $151 million in cash and only $142 million in both long and short-term debt.

Another thing that draws my attention is the company’s high insider ownership. In the prospectus filed in September 2012, all executive officers and directors of the company owned 23.89% stake in the company. Alfred Rankin, Jr., chairman and CEO, held as much as 18.83% of the total shares outstanding.

Peer comparison

At around $55 per share, Hyster-Yale is worth $920 million on the market. The market values Hyster-Yale at only 6.63 times EV/EBITDA. NACCO, after spinning off Hyster-Yale, will own three different businesses including mining (The North American Coal), specialty retailing (The Kitchen Collection) and small appliances (Hamilton Beach Brands). NACCO is trading at nearly $55 per share, with a total market cap of $461 million. It is valued at as high as 16.54 times EV/EBITDA. Wabash National (NYSE: WNC), one of HY’s peers, is maker of standard and customized truck trailers. At $10 per share, the total market cap of Wabash is nearly $684 million. Wabash doesn’t seem to be cheap with more than 9.8 times EV/EBITDA valuation. While Wabash doesn’t pay dividends to shareholders, the dividend yield of NACCO is around 1.8%. In December 2012, Hyster-Yale paid $2 per share special dividend. Its forward dividend yield is equal to that of NACCO at 1.8%. Among the three, Wabash seems to be the most profitable company with 5.8% operating margin while the operating margins of Hyster-Yale and NACCO were much lower, at 4.52% and 1.55%, respectively.

Foolish bottom line

Hyster-Yale seems to be a good stock for a long run, due to its high insider ownership, low valuation and conservative balance sheet. However, investors should remember that Hyster-Yale is in the cyclical industry, thus the business will be up and down depending on the general macroeconomic activity.


Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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