PLOW: A Good Reason to Hope for a Cold Winter?

11/04/2015 12:28 pm EST


Matt McCall

Founder and President, Penn Financial Group

While last year's cold US winter—one of the worst over the last twenty years—was a nightmare for residents of the area, Matt McCall, of Penn Financial Group, points out that it was a godsend for this company and it well may be again this year.

As the winter season approaches and Americans start to spend money to combat the cold and snow, there could be an investment to subsidize the expenses. Douglas Dynamics (PLOW) is a snowplow (hence the ticker symbol) and snow removal equipment manufacturer. The company sells its large products to municipalities and other firms that are in need of major snow removal.

Last winter was one of the worst over the last two decades as the Midwest and Northeast took a beating. While it was a nightmare for residents of the area, it was a godsend for PLOW as the demand for their products surged. Earnings per share have been on the rise the last few years, increasing from $0.27 in 2012 to $1.82 in 2014. The estimate is for earning growth to be flat in 2015 and fall to $1.27 in 2016.

The three analysts that cover the company have a difficult job when attempting to determine the future earnings potential. If 2015-2016 is another wild winter it should put the earnings well above expectations. That being said, a mild winter could have the exact opposite affect on the bottom line.

The company reported third quarter earnings this week and from top to bottom they were impressive. Considering 2014 was a record year for the company, it was expected that this year could have trouble keeping up with the growth. Through three quarters PLOW is ahead of last year and once again setting new records. Net sales for the third quarter came in at $120.6 million, an increase of 53% from last year. Of the increase of $41.8 million over last year, $26.9 million can be attributed to the acquisition of Henderson Products.

Net income was a record $15.5 million or $0.68 per diluted share; this compares to net income of $10.8 million and earnings of $0.47 per diluted share last year. The company reaffirmed the outlook for the entire year as they look for diluted earnings per share between $1.70 and $2.05. Sales are expected to come in between $385 million and $420 million. Based on the middle of the expectations the stock is trading with a P/E ratio of 11.9 for this year; well below the overall market and its sector.

A bonus for investors is the dividend yield on the stock. The company announced the quarterly dividend for shareholders as of the close on September 21, 2015 at $0.2225 per share. This works out to $0.89 annually or a yield of 4.0%. Considering the yield on the 10-year Treasury is at 2.15%, the stock is also attractive to income-seeking investors.

For the first time, you may be looking out your window in the morning in hopes of big snowfalls to boost your portfolio.

Matt McCall, Founder and President, Penn Financial Group

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