Preformed Line Products Company (NASDAQ:PLPC)

CAPS Rating: 5 out of 5

An international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, information and other similar industries.


Player Avatar ikkyu2 (99.23) Submitted: 4/4/2011 1:43:12 PM : Outperform Start Price: $68.79 PLPC Score: -85.49

Volatile little company that makes wireline and other subterranean infrastructure, with 50+% of its business coming from rest-of-world (ex-US).

It's been on an acquisition spree for the last 4 years, getting rid of some free cash, and the goodwill and amortization numbers have sort of confused the balance sheet. The latest acquisition, Dulmison, bought from Tyco Electronics, serves the 'transmission, distribution and fiber optic' arena and as far as management seems to want to state, the acquisition has been immediately accretive. However, earnings have been lumpy - they put in a nice miss in 1Q10 and a strong beat in 3Q10 - and they have not been able to grow a cash pile, stuff's burning a hole in their pocket and cash on hand has been on a downtrend, from $30m to $23m - since 2006. They pay a little dividend that boils down to an 18% payout ratio. Debt to equity is 5%; nearly 2/3 of shareholder equity is intangibles and goodwill.

I think upside could include greater profits from integration than is currently realized (gritting my teeth, because so often the opposite is true,) a stronger economic recovery worldwide, and a possible moderation of commodity costs. Downside is pretty much the mirror flip of the above - higher commodity costs, worldwide stagflation, and the usual integration snafus.

The company was cheap a year ago, selling well below P/B and with a P/E in the mid single digits, but share price has doubled since then. Insiders are bullish and own 34% of the company, unusual, but they have issued nearly 1.2% of the total equity of the company in share-based compensation to directors in the last year; the CEO's wife is a director and they even issued some number of shares to some entity called 'Rabbi Trust.'

I think the company is probably set to tick along, but I think buying it here means banking on it doubling its earnings this year, and I see no sign that that is likely to occur. Made the pick before I did the DD, so take it for what it's worth.

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