Linamar Corporation (LNR.TO)
From Internet Wealth Builder
Linamar Corporation (LNR.TO) is a diversified global manufacturing company of highly engineered products. The majority of its products become components of vehicles for engine, transmission, driveline, and body systems. It has five operating divisions: Machining & Assembly, Light Metal Casting, Forging, Skyjack (which makes aerial work platforms, telehandlers and booms), and the recently acquired MacDon (which makes certain agricultural equipment).
Linamar has over 29,000 employees in 60 manufacturing locations, eight R&D centers, and 25 sales offices in 17 countries. It has 24 manufacturing plants in Canada, six in the U.S., five in Mexico, 17 in Europe, four in China, and three in India. Annual revenues are over $7 billion.
In 2018 sales were 50% in Canada, 33% in Europe, 11% in the U.S. and Mexico together, and 5% to Asia/Pacific.
Linamar’s stock has suffered due to a decline in global auto sales and trade tensions. It was down 38% to $45.30 in 2018 and is little changed in 2019 to date.
On Feb. 1, 2018 the company closed the acquisition of MacDon. It is headquartered in Winnipeg but has global operations. MacDon manufacturers agricultural equipment such as drapers and self-propelled windrowers. At $1.3 billion, this was a large acquisition given Linamar’s 2017 assets of $5.8 billion.
Linamar has been buying back a modest amount of its shares since March of this year, but five insiders have sold shares in recent months.
In the past four quarters, starting with the most recent (first quarter 2019), adjusted earnings per share were down 9%, down 5%, up 5%, and up 23%. Earnings declined in the two most recent quarters due to lower global auto production and trade tensions.
Linamar indicates that North America auto production has been relatively flat while European and Asian production has been down about 5% in recent quarters. Offsetting this, Linamar’s content per vehicle has continued to rise.
Based on my analysis price of $44.53, the price to book ratio at 0.8 (and 1.25 times after deducting goodwill) is attractive. The return on owner’s equity is very good at 16%. The price to trailing earnings ratio is highly attractive at 5.2. The p/e based on analyst earnings estimates is attractive at 5.1. These value ratios, in isolation, would easily support a Buy recommendation.
Linamar appears to be significantly under-valued in relation to earnings. Any significant progress in trade deals could be a catalyst for a higher stock price.
Buy, based on the discounted share price in relation to earnings, but be prepared to be patient.
Shawn Allen in Gordon Pape’s Internet Wealth Builder, www.buildingwealth.ca, 1-888-287-8229, July 22, 2019