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Analysis: For some reason, this one doesn’t shock me (AZZ)


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Company Profile:

AZZ operates in two product segments: Electrical & Industrial Products, and Galvanizing Services. The company’s Electrical & Industrial Products segment manufactures products used by utilities to safely generate and distribute electricity, as well as industrial lighting and tubular products for the oil and gas industry. AZZ’s galvanizing services segment coats steel products in zinc to protect them from corrosion.

The Company operatse fourteen galvanizing plants, which are located in Texas, Louisiana, Alabama, Mississippi, Arkansas, Arizona, Indiana and Ohio. Hot dip galvanizing is a metallurgical process, in which molten zinc is applied to a customer’s material.

The zinc bonding renders a corrosion protection to fabricated steel for extended periods of up to 50 years. The Company typically serves fabricators and/or manufacturers, who provide services to the electrical and telecommunications, bridge and highway, petrochemical and general industrial markets, as well as a number original equipment manufacturers (OEMs).

 

Sales:

 

2003

2004

2005

2006

2007

TTM

Sales $Mil

183

136

152

187

260

323

Operating Income $Mil

18

9

14

36

45

clip_image002Income Tax $Mil

5

3

4

13

16

clip_image002Net Income $Mil

9

4

5

8

22

27

Earnings/Share $

0.82

0.39

0.44

0.69

1.82

2.25

EPS (Cont Ops) $

0.80

0.40

0.40

0.70

1.80

2.30

Dividends/Share $

0.00

0.00

0.00

0.00

0.00

0.00

Total Shares Mil

10

11

11

11

12

12

 

Quarterly income:

 

Sales

02-07

05-07

08-07

11-07

Current $Mil

80.0

75.0

82.0

87.0

% Change From Year Earlier

39.10

43.70

29.80

32.50

Net Income

Current $Mil

7.0

4.0

8.0

8.0

% Change From Year Earlier

176.00

0.50

53.90

54.30

Earnings/Share

Current $

0.58

0.34

0.66

0.66

% Change From Year Earlier

163.80

-2.90

46.70

50.00

 

 

Free Cash Flow (in $Millions):

 

2005

2006

2007

TTM

6

13

7

19

7

7

11

12

0

6

-4

8

 

 

Profitability:

 

PROFIT MARGINS

2004

2005

2006

2007

2008

2008 Q1

2008 Q2

2008 Q3

2008 Q4

2009 Q1

TTM

Gross Margin

19.1

18.7

19.9

25.7

25.2

25.4

26.0

23.4

26.0

26.3

25.4

EBIT Margin

5.1

4.9

6.4

13.3

13.7

9.0

15.8

14.7

14.9

15.8

15.3

EBT Margin

5.1

4.9

6.4

13.3

13.7

9.0

15.8

14.7

14.9

15.8

15.3

Net Margin

3.1

3.2

4.2

8.3

8.6

5.5

9.9

9.3

9.6

10.1

9.8

Tax Rate

37.9%

35.0%

34.9%

37.3%

36.8%

39.1%

36.9%

36.3%

36.0%

35.8%

36.2%

Payout Ratio

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 - 

 

Normalized EBIT Margin

6.6

6.0

7.3

13.6

14.2

9.8

16.2

15.0

15.4

16.9

15.9

Return on Equity

5.9%

6.4%

9.0%

19.2%

19.0%

         

21.4%

 

Ownership:

 

Shares Outstanding

12,000,000

Fund Ownership

4,560,000

Total# of Funds

86

 

Technical Analysis:

Though the market has been bullish on AZZ in general, it’s overbought and that’s a definite concern. It’s seen a great rally from $24 to $46 in the past 52 weeks and is trading just below it’s 80-day resistance level of $44.82. It’s beta is 0.3 which is positive and indicates that it doesn’t react much to the volatility of the market.

My Decision:

Per my calculations I expect the stock to trade between $46-52. Given it’s already at $44 and change, I believe it’s golden run is stalling. The stocks got a relative high PEG ratio and its current PE is 3 times higher than its industry and sector peers. I am going to put this on the watch-list for my portfolio and HOLD for now. A good time to get into this stock will be when it trades in the $28-32 range.

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