Royce Nears 6% Ownership of This Transportation Company
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According to a 13G filed with the SEC, Royce & Associates owns almost 1,250,000 shares of Seacor Holdings (NYSE: CKH). Seacor is a $1.8 billion market cap marine transportation company operating a portfolio of assets including offshore supply vessels, tugboats and pushboats, and tank barges. The stock is down 5% in the last year against a rising market, and down 17% in the last two years. Royce & Associates is a fund managed by Chuck Royce which tends to focus on small-cap and large-cap companies, even if the smaller size of these companies forces the fund to take a large percentage stake. In this case, Royce now owns almost 6% of Seacor’s outstanding shares (See more of Royce's stock picks); earlier this month, we recorded filings from Royce disclosing larger positions in Enersys, Brady Corp, and Molex.
Seacor’s revenue was down in the third quarter of 2012 from the same period in the previous year, but this was entirely due to lower revenues from commodity trading related businesses; the company’s core transportation business actually improved. Seacor Holdings was also able to reduce its operating costs with the result being a 22% increase in operating income. The company experienced an even higher growth rate in terms of earnings, reporting $16 million in net income versus $4 million a year earlier. This built on a successful first half of the year, resulting in earnings more than doubling in the first nine months of 2012 compared to the first nine months of 2011.
The financial community appears bullish on Seacor Holdings (the sell-side perhaps a bit more so than the markets). The trailing P/E of 23 implies that investors expect earnings growth to continue, though obviously at a lower rate than the company has been reporting. Based on analyst consensus, the stock trades at 17 times 2013 earnings and at a five-year PEG ratio of 0.8. We would worry a bit about the growth targets that the company needs to hit, even though we have been seeing it performing well in the last few quarters. An asset-based company like Seacor can also be compared to its book value, and we see that the P/B ratio is almost exactly 1.
13F filings for the third quarter of 2012 reveal that Kensico Capital, managed by Michael Lowenstein, increased its stake during that period by 24% to a total of about 720,000 shares (find more stocks Kensico was buying). Marty Whitman’s Third Avenue Management also reported a significant position in Seacor, at about 540,000 shares (Check out Whitman's favorite stocks).
We can compare Seacor to GulfMark Offshore, Hornbeck Offshore (NYSE: HOS), Tidewater (NYSE: TDW), and Kirby (NYSE: KEX), which are all involved in the marine transportation business. Hornbeck, which primarily operates offshore supply vessels, is something of an anomaly trading at 32 times trailing earnings, though the company has been experiencing good revenue growth. The other three comparable companies have trailing P/Es between 17 and 19, so they are priced at a discount to Seacor at least on that basis. In general, analyst expectations are for these companies to improve over the next year as well, and Gulfmark and Tidewater stand out for having market caps only 10 or 11 times forward earnings estimates--cheap, if the companies can get there. We would also note that in terms of EBITDA multiples, Seacor is actually the company carrying the premium pricing at an EV/EBITDA of 10 as opposed to the 8-9 range where we find its peers.
Seacor isn’t particularly attractive, but it is at least possible that it will continue its impressive growth performance and even from more of a value perspective Royce may be on to something as far as the industry in general is concerned. If the conditions that would make Seacor a good investment come to pass they should certainly benefit companies such as Gulfmark and Tidewater, which may be in the process of becoming outright cheap if they meet expectations in the next couple quarters. They may make good watchlist stocks.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. 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!