Is This Company Poised for Growth?
usman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Global Power Equipment (NASDAQ: GLPW), a Texas-based designing, engineering, and manufacturing company, provides a wide range of equipment and services to the global power infrastructure and process industries. The company recently acquired one of its privately held competitors, IBI Power. In May 2013, it had also acquired Hetsco.
This article assesses these acquisitions in terms of the prospective impact on the company’s financial stability.
The global demand for energy continues to increase as the number of homes, businesses, transportation, and other services rise. This has also increased research aimed at finding alternative energy sources and an increased demand for power generation products and services. It is expected that in the upcoming years, technology will be utilized to increase energy supply and in finding ways to use energy more efficiently.
The power generation industry is likely to grow in the future due to the high economic growth projected in many countries like the U.S., Latin America, Eastern Europe, India and China. These trends will help Global Power in strengthening its financial position.
What benefits will the acquisitions bring?
Global Power has a diversified portfolio of products and services. It acquired IBI power, a custom power packaging and integration solutions, for a price of $19.5 million. Global Power undertook this acquisition to immediately expand its production capacity to fulfill the orders of Koontz-Wagner, currently the fastest growing area of its business.
The additional capacity achieved from this purchase will provide quicker and safer growth for this segment compared to organic growth. The acquisition is expected to supplement Global Power’s engineering content and application expertise, resulting in increased product and service revenues.
It will help the company in the growing PCH market, extend geographic footprint, and improve its product portfolio. Besides that, the acquisition will also expand the company’s operations in distributed power and midstream oil and gas sector.
Prior to this acquisition, the anticipated revenue of Global power for 2013 was $500.3 million and the projected EPS was $0.84. After the current acquisition, the revenue and EPS are expected to rise further.
Global Power also acquired Hetsco, a leading global provider of mission critical brazed aluminum heat exchanger, for $32.5 million. This purchase will broaden Global Power’s reach in oil and gas markets. It will also make the company a market leader of natural gas services. The acquisition fits well into the company’s existing strategic mix. It will also increase the company’s exposure in the adjacent technologies of air and gas separation, heat exchanger, and liquefied natural gas. In 2012, Hetsco generated $25.8 million revenue.
These approaches will help Global Power grab larger market share. Now, let’s see what growth strategies its peers have adopted in relation to its acquisitions.
Foster Wheeler (NASDAQ: FWLT), one of the Global Power’s competitors, currently signed a master service agreement with Enterprise Products Partner, a leading U.S. midstream company which processes, transports, and fractionates natural gas, natural gas liquids, crude oil, and refined products. The agreement will generate significant revenue for Foster Wheeler and strengthen its financial position.
Another peer in the industry, Jacobs Engineering (NYSE: JEC), has received a contract from Eastman to provide architecture, engineering, and interior design services for the company’s new business center. The project is expected to be completed by 2015 and will provide profit of $1.6 billion. Jacobs has also secured two other contracts in June 2013 from the transport authority in Ireland and the Department of Homeland Security. The contracts are expected to bring enormous profits for the company in the forthcoming years.
Profit of Global Power Equipment has declined over the last few years due to higher selling, general, and administrative expenses. However, the profits for the upcoming periods are anticipated to grow due to the significant boost to the company’s revenue after IBI Power’s acquisition. Hence, I would recommend buying Global Power.
Likewise, the growth potential of Foster Wheeler and Jacobs has improved after obtaining such lucrative deals. I would recommend buying these stocks, as in my opinion, they will provide higher returns to investors in the form of price appreciation.
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