Is Raven Industries Twice as Good at Half the Price? By Rich Duprey, The Motley Fool
Fools know the value of a stock split: zero. It's a non-event. Instead of a $20 bill in your wallet, you now have two $10 bills. So if they mean nothing, why do them? There are a few reasons, none of which has anything to do with whether the stock is a good investment. Here are the usual ones: •To make the stock look cheap. •To increase liquidity. •To meet stock-exchange listing requirements. •To express a bullish management sentiment.
Regardless of the reason, markets tend to view splits as positive events, and a company's shares can get a short-term boost from the news. But if the company isn't a good, long-term business, it doesn't matter if its shares split, or whether you buy them before or after.
That's why we pair up stock-split announcements with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best stock pickers think a company's long-term potential is outstanding, and the company is giving off bullish signals, maybe investors should take notice.
Raven Industries (NAS: RAVN) , a specialty products maker for the agricultural industry, recently announced it was splitting its shares 2-for-1 with a payable date of July 25. We'd never advocate blindly buying into any split -- you still need to do some research -- but let's use the announcement as a jumping-off point to start the process of determining whether its shares will be twice as good at half the price post-split.
On autopilot When thinking of agricultural growth opportunities, most investors default to fertilizer stocks like PotashCorp, Mosaic, or CF Industries, believing people have to eat and farmers have to farm, so they're going to need fertilizer regardless of the crops they're planting. While that thesis holds true over the long haul, individual crops may cause these companies to fall or rise depending on market conditions.
And of course, you have to split your posts on Yahoo, so here is part 2.
Yet using that same thinking, an equally strong argument can be made for Raven. It makes technology farmers use every day, including field computers, application controls, GPS guidance and assisted-steering systems, and yield-monitoring planter controls. It also makes reinforced plastic sheeting for industrial, energy, construction, geomembrane, and agricultural applications.
Its tech division saw a 29% jump in first-quarter sales, driving a 39% increase in operating profits. The engineered films segment did even better, enjoying a 37% increase in sales and a doubling in profits.
A bumper crop The industry in general is enjoying a bit of good fortune. For example, Trimble Navigation (NAS: TRMB) , a maker of GPS and other positioning systems for agricultural and industrial uses, saw per-share profits pop 36% as business remained stable globally despite Europe's fiscal woes, even as much of the agricultural equipment industry was taking it on the chin. CNH Global (NYS: CNH) , which sells navigation equipment through its New Holland division, as well as tractors and combines, suffered a worldwide sales drop of 2% as drought in Latin America and combine equipment being unavailable in the U.S. took its toll. Caterpillar is seeing a dramatic decline in growth rates.
Raven is poised to benefit as farmers turn more to technology to help them wring efficiencies out of their fields. Many farmers use technology from Garmin, but the exacting nature of Raven's technology puts it well ahead of the GPS maker.
Price is what you pay At 25 times earnings, Raven is favorably priced to industry leader Trimble, which trades at 34 times last year's profits, though it trails in long-term earnings growth estimates. Raven's prospects do look better than the broadly diversified CNH, which has feet in both agriculture and construction, but its Aerostat division relies heavily upon government sales for sustenance and that hasn't been working out of late. Raven is also restructuring its electronic systems segment where Goodrich (NYS: GR) accounted for 10% of the division's sales.
Investors remain bullish about Raven, with 97% of the 477 CAPS members rating the specialty tech leader marking it to outperform the broad indexes. All-Stars are on board as are all three Wall Street analysts tracking Raven on CAPS.