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Value Thoughts - Insituform Technologies, Inc.

Recs

8

June 06, 2011 – Comments (4) | RELATED TICKERS: AEGN

Insituform Technologies, Inc. (NYSE: INSU) is a worldwide provider of proprietary technologies and services for rehabilitating sewer, water, energy and mining piping systems and the corrosion protection of industrial pipelines.

Business activities include research and development, manufacturing, distribution, installation, coating and insulation, cathodic protection and licensing. Its products and services are currently utilized and performed in 70 countries across six continents.

Incorporated in Delaware in 1980, under the name Insituform of North America, Inc. the company's business model has evolved from purely licensing technology and manufacturing materials to performing the entire Insituform® CIPP (cured-in-place pipe) process and other trenchless technologies and rehabilitating and performing corrosion protection services for industrial pipelines in most geographic locations.

As of December 31, 2010 the company held 59 United States patents relating to the Insituform® CIPP process, the last of which will expire in 2027, and had 12 pending United States non-provisional patent applications relating to the Insituform® CIPP process.

In addition, the company has obtained and is pursuing patent protection in its principal foreign markets covering various aspects of the Insituform® CIPP process. As of December 31, 2010, there were 152 issued foreign patents and utility models relating to the Insituform® CIPP processes, and 104 applications pending in foreign jurisdictions.

Basis

Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 28, 2011.

Short-Term Investment Considerations

The stock closed recently at $24.14, with first First Resistance at $25.08, a 4% increase from the recent close and Second Resistance at $25.63, a 6% increase from the recent close. Should the stock price breakthrough second Resistance, it should find a ceiling near $30.00, 24% increase from the recent close.

The stock price should find Support at $18.52, a 23% decline from a recent close.

Relative Strength is currently 40, correcting from an oversold condition. With a ceiling and support at essentially the same levels, we have no short-term interest in this stock at the present time.

Fundamental Investment Considerations

Liquidity: The company ended FY10 with a Current Ratio of 2.69, a Quick Ratio of 1.69, a Cash Ratio of 0.66, and a Cash Conversion Cycle of 13 days. In addition, Goodwill and Intangibles comprised 28% of Total Assets. The company had a Book Value of $15.38 and a Tangible Book Value of $8.90.

Profitability: For FY10, the company had a Gross Margin of 28%, an Operating Margin of 12%, a Net Operation Margin After Taxes (NOPAT) of 9%, a Return On Invested Capital (ROIC) of 21%, and an Effective Tax rate of 27%.

Debt: For FY10 the company had Total Debt of $105 million, a year over year decrease of 10%. Additionally, the company paid an average annual Interest Rate 8.3%, an 1.04% year over year increase, had a Debt to Cash Ratio of 0.91, and a Debt to Equity Ratio of 0.17.

Cash Flow: The company's FY10 Operating Cash Flow was $3.14 per share, a year over year decrease of 52%, and its Free Cash Flow was $2.13, a year over year decrease of 65%.

Dividends: During FY10 the company paid a dividend of $0.01 per share, a 66% year over year decrease. Based on a recent close of $24.14, the Dividend Yield is 0.04%.

Earnings Growth Valuation

Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Insituform Technologies, Inc., the company had a year over year earnings decline of 50%, ending FY10 with earnings of $2.11 per share.

With a trailing twelve month PE of 11, the spread between earnings growth and the PE is about (4.4), meaning that for an investor focusing on earnings growth, the stock should be trading near $14.87, a $9.27 decrease from a recent close.

Fundamental Valuation

Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $39-$41 range.

Value Thoughts

Considering a recent close of $24.14, an estimated Merger and Acquisition payback of 8.1 years (assuming EBITDA remains the same), a year over year earnings decline of 50%, as well as a year over year free cash flow decline of 65%, we think the stock is currently UNDER PRICED, and a candidate for additional research for the Wax Ink Portfolio.

Wax

Disclaimer

We have no position in Insituform Technologies, Inc., and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

4 Comments – Post Your Own

#1) On June 06, 2011 at 10:56 AM, EnigmaDude (86.73) wrote:

I don't understand why you don't get more recs for your thoughtful, comprehensive blog posts that actually help investors to uncover potential gems. 

Great post!  Wish I could give it more than 1 rec.

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#2) On June 06, 2011 at 11:33 AM, chk999 (99.97) wrote:

Excellent post! And I agree with EnigmaDude, you deserve a boat load of recs.

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#3) On June 09, 2011 at 9:30 AM, lemoneater (71.74) wrote:

Agree with the above. You introduced me to the term "pick and shovel" investing.

It's hard to get more basic than pipe repair. It sounds like Insituform (in-situ-form clever Latin name) in its quiet way is preventing pollution from happening in a variety of industrial applications.

 

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#4) On June 14, 2011 at 4:20 AM, wax (97.61) wrote:

All;

Thanx for your comments. As to the recs....well as Abe said, I will prepare myself and the opportunities will come.

Wax

 

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