This equipment company is expected to report earnings tomorrow, and analysts expect EPS of $0.74 per share.
The Toro Company (TTC)
From Sure Dividend
The Toro Company (TTC) was founded in 1914 as an engine manufacturer, providing power to early tractors. The company quickly shifted focus to mowers, where it continues its focus today. Toro will also benefit from growth in the water industry because the company has a large irrigation business, which represents approximately 16% of annual sales.
In all, Toro generates annual revenue of $2.8 billion. Toro generates approximately 75% of its sales in the United States. It caters heavily to professional customers, who provide 74% of annual revenue. Toro has generated steady, impressive growth over the past several years.
Toro reported second-quarter earnings on May 23rd, 2019 and recorded a 9.9% increase in second quarter sales to $962.0 million, boosted by the acquisition of Charles Machine Works. Adjusted net earnings for the second quarter period fell 2.5% to $1.17 per share, compared to the same quarter last year.
Fortunately, management expects margin improvement over the back half of 2019, as well as improved commodity pricing. The company has also identified margin improvement opportunities associated with their acquisition of Charles Machine Works. Management forecasts adjusted EPS of about $2.90 to $3.00 on revenue of $3.2 billion for 2019.
With expected EPS of $2.95 for 2019, Toro stock trades for a P/E ratio of 24.5x. Our fair value estimate is a P/E ratio of 21.5x, implying the stock is overvalued today. This could negatively impact shareholder returns by approximately 2.6% per year through 2024.
Still, we expect Toro to generate annual EPS growth of 12% per year, more than offsetting an overvalued stock. In addition, the stock’s dividend yield leads to total expected returns of 10.7% per year over the next five years. Toro is not a high-yield dividend stock, but its impressive growth and nearly 11% expected annual return give the stock a buy recommendation from Sure Dividend.
Ben Reynolds & Bob Ciura, Sure Dividend Newsletter, www.suredividend.com, ben@suredividend.com, August 12, 2019