Most of the negative comments about CTB on this board relate to the stock not the company. The stock has performed very poorly as have most auto suppliers: see DCN and FMO.
I keep hearing that the company is in trouble, took on too much debt, overpaid for SPD and that management is incompetent.
From 1983 through 1999 EPS increased from .42 to 1.87 with the dividend rising every year from .04 to .27. There has never been a year that CTB has earned less than 14% ROE with equity per share increasing every year from 1.75 to 12.70. EPS is forecasted to increase to 2.04 this year and 2.23 next year. With the SPD acquisition they have picked up .15 per share amortization of goodwill, so for cash EPS add .15 to the forecasts bringing them to 2.19 this year and 2.38 next.
Apparently the naysayers either believe a 4PE ratio is too high a price for CTB or believe that these EPS projections are too high. If the later case, they must know more than the half dozen analysts following the company.
I do not see this as a classic "turnaround play" as I have yet to see any "turndown" to be turned around.
As for weakness in 4th quarter this was to be expected from "housecleaning" moves from the acquistions. It is standard procedure to have write-offs and clean the slate for the following year.
I am still waiting for the bad earnings the naysayers project.
I agree with you, in a report 2/8/00 S&P said the company still has a strong balance sheet but cyclicals are just out of favor now.Everything I read still project over $2 earnings this year, thats a 5 PE not bad.
Thank you for your recent post which was very insightful. I have little accounting expertise and would like to ask a few questions. What is amortization of goodwill? I thought that goodwill is basically giving things away for charitable purposes i.e. donations for the needy. How could that account for per share earnings?
Also how do acquisitions create a need for "housecleaning"?
In regard to CTB's financial situation I checked the Yahoo profile page at:
According to their info the Earnings Per Share is $1.79 for the trailing twelve months with a 5.62 Price/Earnings and an annual dividend of $0.42/share. This is definitely a "value" stock in today's stock market.
How are you calculating this year's and next year's EPS?
Goodwill is the excess of the purchase price paid for a business over the net assets on the books of the acquired business. It is required to be amortized or wrtitten off over a period of years. However, it is not like depreciation of fixed assets, which will be replaced. There is no need to replace the goodwill. Therefore, it is essentially hidden earnings. For CTB it is about 15 cents per share and should be added back to the 2.04 and 2.23 EPS estimates for 2000 and 2001.
I did not calculate these EPS projections. They are the averages of analysts following the company. Click on Research to get the details.
Acquisitions do not create a need for accounting "housekeeping" but they do create an opportunity which management acts upon. Any assets not deemed to be usable are written off. Any anticipated expense is accrured. In effect, the year 1999 was charged with the expense rather than have it be an expense against a future year.
Much has been made of the debt slightly exceeding the equity. However, with CTB's strong earnings and cash flows this should be reduced significantly in a couple of years. If at the end of 2000 equity and debt are equal at about $14 each per share, with 1.50 per share per year of excess of EPS over dividend per share, equity will be 15.50 and debt 12.50 in one year (.81 ratio) and equity will be 17 and debt 11 at end of 2002 (.65 ratio).
There is only one thing to fear for CTB and that is EPS declining significantly below $2.00 per share. I have yet to see any evidence of this. In a year or 2 CTB will be selling for 2 times BV per share: that is $28 this year or $31 in 2001 or $34 in 2002. In effect you will be compensated for waiting. Remember the ad: "you can pay me now or you can pay me later". This is on top of 5% dividend while you wait.