This Technology Solutions Company Looks Cheap
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Since the middle of 2012, John Bean Technologies (NYSE: JBT) has advanced significantly, from only $13.50 per share to nearly $21.70 per share at the time of writing. Interestingly, John Bean is in the portfolio of many famous investors including Mario Gabelli, Joel Greenblatt, and small cap guru Chuck Royce. Should we follow these investment gurus into John Bean at its current trading price? Let’s find out.
John Bean is a global provider of technology solutions, specifically for food processing and air transportation businesses, operating in two main business segments: FoodTech and AeroTech. Most of its operating income, $53.2 million, or 60.8% of the total operating profit, was generated from the FoodTech segment while the AeroTech segment contributed around $34.3 million in profit.
In the past four years, John Bean has delivered inconsistent results. While revenue fluctuated in the range of $842 million to $965 million, net income has stayed in the range of $31 million-$37 million in the same period. In 2012, John Bean produced $917 million in revenue, $36 million in net income, or $1.23 per share, and $61 million in free cash flow. The dividend came in at $0.28 per share with a conservative payout ratio of only 22.2%.
John Bean uses some leverage in its operations. As of March 2013, it had $106 million in equity, $15 million in cash, and as much as $102 million in both long and short-term debt. Moreover, it also recorded $99 million in pensions and other benefits. The market values John Bean at 8.34 times its trailing EBITDA (earnings before interest, taxes, depreciation, and amortization). The company offers its shareholders a dividend yielding 1.7%.
Relatively cheaper than its peers
Interestingly, John Bean seems to be cheap compared to its much larger peers Illinois Tool Works (NYSE: ITW) and The Manitowoc Company (NYSE: MTW). The market values Manitowoc at a higher EBITDA multiple of 10.5. Manitowoc derived most of its revenue, $2.4 billion, from the Crane segment while the Foodservice segment contributed around $1.5 billion in sales. The company is quite strong in the restaurant market, accounting for 66% of the total revenue in the Foodservice segment while in the Cranes segment, more than 65% came from the Energy/Infrastructure end market.
Looking forward, Manitowoc would look to strengthen its balance sheet. Since its Enodis acquisition, the company has repaid more than $1 billion in debt. However, it is still highly leveraged. As of March 2013, it had $602 million in equity, $104 million cash and short-term investments, and as much as around $1.95 billion in debt. In 2013, Manitowoc expects to reduce more than $200 million in debt. The company estimates revenue growth of the Crane business to stay in the high single-digits while Foodservice segment revenue might experience mid single-digit percentage growth.
Illinois Tool Works also has a higher valuation than John Bean. The market values Illinois Tool Works at 9.8 times its trailing EBITDA. Recently, the company expanded its footprint in China by acquiring Gold Pattern Holdings, which owns 100% of Vesta Global, the leading Western kitchen equipment maker in China. The company reported that Vesta’s customers were restaurant chains, four and five star hotels, operating two manufacturing sites.
Chris O’Herlihy, ITW Executive VP, said: “We are pleased to add Vesta to our global food equipment business. This acquisition gives us entry to the fast-growing Chinese Western cooking industry with a differentiated product offering, attractive end market presence, and a well-established national distribution sales and service network.”
Going forward, the company expects to generate compound annual growth of more than 12% beyond 2017 with ROIC of more than 20%. For full year 2013, Illinois Tool Works estimates its total revenue growth to stay in the range of 2%-4%. The diluted EPS might come in at $4.15 to $4.35. Interestingly, the company also expects to return more than $850 million in cash to shareholders in the form of share repurchases. Among the three, Illinois Tool Works pays the highest dividend yield at 2.2%.
My Foolish take
John Bean, with its market leading position, a decent dividend yield, and the lowest valuation among its peers seems to be a good pick now. According to Barron’s, investors might like the fact that its aftermarket parts and services business, with higher margin than equipment sales, has been growing rapidly. Consequently, John Bean’s overall operating margin has increased.
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Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Illinois Tool Works. The Motley Fool owns shares of John Bean Technologies. 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!