Dear Mr. Berko:
My stockbroker wants me to buy 500 shares of Columbus McKinnon on margin. He tells me that an activist group, which he won’t name, may be interested in taking a large position in Columbus McKinnon and selling it later at a much higher price, intending to market the company to a larger competitor. What do you think?
– F.J., Vancouver, Wash.
I think that’s a bunch of balderdash, baloney, bull, bilge and bosh! But it could happen.
This Getzville, New York, company designs and manufactures actuators, chains, rigging tools, electric chain hoists, air-powered hoists, hand-operated hoists, electric wire rope hoists, lever tools, cranes and winches under such names as Pfaff Silberblau, Coffing, Yale and Stahl. Columbus McKinnon (CMCO-$34) also produces various alloy and carbon steel chains, including hooks, master links, load binders and other securing devices. And CMCO designs and manufactures power and motion control systems — including AC and DC drive systems and radio remote controls — for underground mining, for steel jibs and gantry cranes, for light rail stations, and for mechanical and electromechanical actuators.
In 2017, management, with the help of 3,300 employees, designed, manufactured and sold these products, putting a record $831 million in revenues on the books. And during that process, CMCO management produced a record net profit of $47 million. CMCO has been in this machinery business since 1875, the same year that the electric dental drill was patented by George “The Impaler” Green. This industrial equipment company is expected to generate well-above-average numbers over the coming dozen months, producing record revenues, record earnings, record net profit margins, a record cash flow and a record book value for all of its 23 million outstanding shares. But sadly, the tightfisted, mingy skinflints in management see no reason to improve the 20-cent dividend. I was disappointed to see that Kurt Wozniak, vice president of industrial products, sold half of his 50,000-share position in June at $42, 8 points ago.
This year, revenues should grow by 9 percent, to $900 million. Significantly improving net profit margins should jump 2018 earnings from $2.01 to $2.45 a share. Cash flow should increase by 20 percent, to $4.40 a share. But CMCO’s penurious board of directors will probably keep the dividend at two dimes.
Meanwhile, I was surprised to learn that the Royal Bank of Canada owns 2.8 million shares, over 12 percent of the stock, and that BlackRock and Dimensional Fund Advisors own 1.5 million CMCO shares apiece. They and State Street, Northern Trust, AllianceBernstein, Lord Abbett and Vanguard own millions of shares because they believe that by 2021, revenues could come in at $1.25 billion and earnings could exceed $4.05 a share. They also think that net profit margins could top 6.6 percent. And RBC thinks CMCO’s costive board of directors could raise the 20-cent dividend. The company’s recently designed and newly tested operating system is expected to improve both productivity and growth and ensure momentum. This industrial equipment manufacturer has a strong balance sheet and flexible cash management. So the current rapid improvement in updated products and new product availability, plus a strong economic tail wind, suggests global demand will continue to grow. It’s little wonder that some of Wall Street’s most impressive names own CMCO.
Look around and notice the nonstop construction and building activity that has been bubbling up for the past couple of years. In the coming three to five years, this activity will continue to pick up, with the building of tunnels, dams, bridges, sewers and highway interchanges, all of which will require sophisticated material-handling products. Meanwhile, when it comes to handling materials, newly integrated solutions for the industrial, heavy equipment, automotive, warehouse and construction industries should round out CMCO’s portfolio.
CMCO is down 40 percent from its yearly high. However, in the coming few years, industry gurus believe that CMCO shares could rise to the low $90s. And some members of Columbus McKinnon’s board are privately and shyly looking for small glove-in-hand-like acquisitions that would neatly fit into the CMCO product fold.•
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or email him at email@example.com. The opinions expressed in this column are those of the author.
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