Midwest Gear Maker Has What It Takes

08/21/2007 12:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Jack Adamo, editor of Jack Adamo’s Insiders Plus, says Wisconsin’s Manitowoc Company offers a great combination of strong growth at a reasonable price.

I’ve been looking at a lot of capital goods manufacturers lately. They are in a very sweet spot because of the ongoing growth in China, the rest of Asia, South America, and Africa. I can find none better positioned than Manitowoc Company (NYSE: MTW).

Manitowoc, [based in Wisconsin], produces, sells, and services capital equipment in three divisions: cranes, food service equipment, and marine. The marine division makes ships and related products. Food service makes ice-cube and flaker machines and storage bins, commercial refrigerators, and freezers, and related equipment. The company leads its industry in each of these categories.

Shareholders are a happy lot at Manitowoc. For the last 17 years, the stock has risen at a compound annual rate of 23.3%. (For the last five years, it’s grown at 35%.) Last year earnings per share rose 149%, [and] return of equity was 31%.

Need more convincing? Earnings per share are expected to grow 19% this year, [while] the order backlog last quarter grew to $2.1 billion, up nearly 85% over the prior year. [Meanwhile], the stock is selling at just 16x this year’s low-end earnings estimate.

Manitowoc has only 53% of its revenue coming from the US, [but] despite the slowdown in residential building, even US growth has been fine. Revenues were up 30% in 2006. I compared Manitowoc to a lot of other capital-goods companies, and none of them was holding up well in America. That shows how well positioned MTW is.

[Here are some key] reasons to buy MTW:
1. [It has] 17 years of shareholder returns well above 20% compounded. 
2. It’s well positioned in the fastest growing regions of the world.
3. [Its ROE is] more than double [that of] solid growth company standards.
4. Its order backlog promises continued growth ahead.
5. Its P/E ratio lower than its projected growth rate represents a rare bargain

Manitowoc has shown year after year that it is a premier growth company. With a market capitalization of only $4.6 billion and whole continents opening up to it, this star will shine for many more years to come. It will have its ups and downs, but on net, I think we’ll get 15% per year for at least the next decade.

The stock is up 32% this year, but has pulled back 16% from its high during the recent turmoil. That’s all the patience I can stand to exercise; I’m putting out the buy recommendation now. Buy Manitowoc Company up to $80. (It closed just below $74 Monday—Editor.)

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