New Seasons, New Stock Idea
|Written by GSCR Staff|
|Wednesday, 15 April 2015 06:00|
Happy Tax Day! As this season ends, three more have begun in earnest.
Last week Wall Street began ‘earnings’ season for 1Q15. For the most part the results are mixed, and we expect that to continue.
Over the past two weeks, as absurd as it may sound, the 2016 presidential campaign ‘season’ has begun. The hypocrisy on both sides is almost laughable. For six years the GOP has bashed Obama and his experience for only serving a partial term as a U.S. Senator. All three GOP candidates are first term Senators. And then there’s Hillary trying to be cool by announcing online with the same populist talk she always spouts. Meanwhile, the Clinton’s are millionaires several times over.
The other season that has begun is outdoor yard work season. Grass cutting, planting, and other chores seem fun in April but lose their luster in 90 degree July heat. One small cap stock along these lines is Briggs & Stratton Corporation (NYSE – BGG - $20.20). The one year chart below illustrates that the stock has moved above the 50-day EMA, a great technical signal.
BGG 1 Year Chart – 50-Day EMA
Briggs & Stratton should be a familiar brand. The Company designs, manufactures, markets, and services air cooled gasoline engines for outdoor power equipment. It operates in two segments, Engines and Products. The Engines segment offers four-cycle aluminum alloy gasoline engines that are used primarily by the lawn and garden equipment industry. Its products are used in various lawn and garden equipment applications, including walk-behind lawn mowers, riding lawn mowers, garden tillers, and snow throwers, as well as products for industrial, construction, agricultural, and other consumer applications that include portable and standby generators, pumps, and pressure washers. This segment also manufactures and sells replacement engines and service parts to sales and service distributors. The Products segment offers portable and standby generators, pressure washers, snow throwers, and lawn and garden powered equipment. This segment sells its products through various channels of retail distribution, including consumer home centers, warehouse clubs, mass merchants, and independent dealers under its brands, which include Briggs & Stratton, Snapper, Simplicity, Ferris, Snapper Pro, Murray, Branco, and Victa, as well as other brands, such as Craftsman, GE, and Troy-Bilt.
The first plus for BGG is a forward P/E of 13 versus a trailing P/E of 24 and a low 5-year PEG ratio of 1.2. An Enterprise Value/EBITDA ratio under 10 is also a plus. A dividend yield of 2.5% also is a decent price value indicator.
Briggs and Stratton continues to expand in all of its product and service lines. The Company recently joined the SmartEquip Network to provide more efficient electronic parts and service support and procurement for rental companies and equipment fleet owners. Additionally, the Company introduced new starter technology on its Cub Cadet lawn mowers at Cub Cadet independent dealers and Costco Wholesale. InStart® lithium-ion starting technology, combined with Briggs & Stratton's ReadyStart® Starting System, requires no priming, no choking and no rope to pull. Finally, the Company recently introduced the new EXi Series lawn mower engine which is the first that never needs an oil change.
The Company announces FY15Q3 financial results next Thursday, April 23rd. Look for a pop if the results are positive. We think BGG climbs to mid $20’slater this year. If the June 2015 year EPS estimate is met, a $25 stock price equates to a reasonable 20x P/E.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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