Enterprise Value = $268.74 million
Operating Income = $29.68 million
EV/Operating Income = 9.05x
Price/Revenue = .6x
Earnings Yield = 9%
Debt/Equity = 25%
Preformed was founded in 1947 by Thomas F. Peterson, who held several patents for “armor rods,” which protect electrical conductors in overhead power lines. The product was a success, and the company grew significantly. Over the years, the company expanded into several other products involved in cable and power transmission, including fiber optics.
Demand comes from the construction of new power lines, power equipment, telecommunications infrastructure, data communication. Their products can be used to repair and revitalize aging power infrastructure. Their products can also prevent the loss of energy in a power line, helping save the end customers money.
The business is divided up into three main areas:
- Energy products – 69% of the company’s revenue. This is the core of the company’s business and ties back into the company’s heritage of armor rods. They are referred to mainly as “formed wire products.”
- Communications products – 21% of the company’s revenue. Preformed’s products protect communication lines (like copper cables and fiber optics) from environmental hazards.
- Special industries products – 10% of the company’s revenue, mainly involving data hardware
Preformed’s customers are mainly electric utilities, cable operators, and renewable energy companies.
I think it’s possible that we’re headed for a recession, so I like that this company’s business, while cyclical, should still do alright even if we face a recession. Power grids need maintenance, cable networks need maintanence, and it’s not something that is simple discretionary spending that will be slashed in a recession. The resiliency of the business is evident in the company’s history of results. Even in the depths of the recession, in 2009, the company still made $4.35 per share.
PLPC also has the opportunity to benefit from global economic growth. Products are sold around the world. As the global economy grows, demand for electricity and telecommunications services will grow. This increases demand for PLPC products. Meanwhile, in the United States, the electrical and telecommunications grid will require constant maintenance and spending, creating a steady demand for Preformed’s products. If Trump and the Democrats can cut an infrastructure deal (I know, but stranger things have happened), that would also benefit Preformed.
The balance sheet is in a strong position. Against the current price of $51.17, $9.05 in cash. The debt/equity ratio is 18%. With an Altman Z-Score of 3.9, bankruptcy risk is very low.
Meanwhile, Preformed’s current price is compelling. The P/E is 11, and the 5-year average is 21. The EV/EBIT multiple is 9, and PLPC typically trades around 13. An increase to this level would be a 44% increase from current levels. The stock currently trades for 60% of sales, which is where it was in the depths of early 2009 market collapse. Preformed also trades near book value, which has marked similar nadirs in the stock price.
Overall, I think Preformed is currently a business that should stay resilient in a recession with strong growth prospects. At a compelling price relative to its history, I think it is a good addition to my portfolio.
PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings. Read the full disclaimer.