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Earnings Preview for NN, Inc. (NNBR)

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October 28, 2008 – Comments (0) | RELATED TICKERS: NNBR

I received an e-mail asking how I felt about one of my picks, NNBR, going into earnings next week and decided to answer with a short blog entry.

I’ve been impressed by NN’s last two quarters, but don’t have a good feel for the upcoming report.  The company’s products are primarily connected to machinery manufacturing with some auto/truck and housing in the US, Europe and Asia.  So their business isn’t exactly in a sweet spot at the moment.

Positives are a high dividend yield for an industrial stock and recent business improvements in a tough environment that’s been getting tougher.

Biggest negative is trying to sell bearings, plastics and precision metal components into what looks like a global recession.

In addition to the earnings numbers and outlook during the earnings report, look for progress on debt reduction.  For the last two quarters, the company has been projecting and tracking towards a $20 million debt pay down this year.  Enough earnings to cover the dividend along with making progress on debt reduction are the two key factors I would look for if I owned the stock. (I don’t)

European and Asian sales had been driving the business earlier in the year.  The prospect of that business falling off with weaker economies, particularly in Europe, doesn’t make me inclined to buy here.  If I owned the stock, I’d hold and see what they have to report during the call.  IMHO, problem areas in the earnings report would be a signal to sell, then wait to possibly get back in at a lower price.

Short term, trying to predict anything in this market seems small f foolish.  For an investor with a longer-term outlook, the dividend pays well while you wait for things to pick up, provided they can maintain it.  If I were going to buy it, I’d want to see a decent report this quarter and then enter a lowball limit order and wait for volatility to trip it.  My guess is there’s no rush, Mr. Market will have it on sale for some time.

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