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Miller Pulls in Profits in Towing

04/10/2019 5:00 am EST

Focus: INDUSTRIALS

Douglas Gerlach

President, ICLUBcentral, Inc.

Miller Industries (MLR) offers wreckers, such as conventional tow trucks and recovery vehicles used to recover and tow disabled vehicles; it also makes specialized flat-bed car carriers and multi-vehicle transport trailers with upper and lower decks, explains Doug Gerlach, editor of Small Cap Informer.

Based inTennessee, the company has four manufacturing facilities in the United States, one in England, and one in France. The company recently completed an expansion of its manufacturing facility in Pennsylvania, which is aiding production capacity and efficiency.

Sales have grown at an average 11.7% per year in the past decade, dipping slightly in 2012, but recovering since then to reach total sales of $711.7 million in 2018. EPS likewise dropped in 2012 but has averaged 14.7% a year since 2009.

In the last six, EPS have grown at an annualized rate of 23.6%. For the fourth quarter of 2018, sales were $180.0 million, an increase of 12.7% compared to $159.7 million for the fourth quarter of 2017. EPS was $0.94, an increase of 16.0% compared to $0.81 in the prior year period.

The company attributes gains to continued strong demand in domestic and international markets For the full year ended December 31, 2018, sales grew 15.7% from fiscal 2017, while EPS were up 46.5% compared to the prior year. We are conservatively maintaining our forward sales growth rate at 10% a year, with EPS growth of 12%.

Miller operates in a low-margin industry. Pre-tax profit margins have been trending since 2012 upward from 3.4% to 5.9%. Returns on equity are also trending upward, reaching 17.2% in fiscal 2018. The company has a minimal amount of debt, amounting to 7.1% of equity at year-end 2018. It has a $50 million revolving line of credit that it can tap if the need arises.

The adjusted annual high P/E for MLR in the past five years the stock is 14.3, with a low average P/E of 10.9. We are knocking our expected high and low P/E ratios to 12 and 8 out of an abundance of conservatism. The stock currently trades at a P/E of 10.5. With EPS forecast at $5.22 five years out, the stock could reach $62.

Estimated low EPS of $2.96 yields a potential low of $24. Based on the current price, the range from $24 to $62 represents a risk-reward ratio of 4.3 to 1, above our goal of 3 to 1. The potential return of 18.2% annually meets our goal of 15% annually for a small stock.

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