You’ll receive your new Investment Digest this afternoon. First, one more Daily Alert recommendation, from Tom Byrne’s The Periscope Report.
“John Bean Technologies Corp. (JBT, $16) sells specialized machinery to food processors and all types of equipment used in airports, [including jetways, de-icers and machines] for loading, unloading and towing large aircraft. On the food side, most of the machinery is made to customer specifications and must be upgraded regularly. This makes for ‘sticky’ customers who provide a recurring revenue stream, an imperative trait for our Top Recommendations.
“We view JBT as a technology company because it is constantly inventing new solutions for food companies. As such, it is greatly undervalued at 10 times expected earnings and 0.5 times sales. Backing out the $75 million cash position, those valuations go down even further. ... JBT has 3,300 employees that generated $921 million in revenue over the last 12 months, or $279,000 per employee, which is a moderate ratio. Close competitor Illinois Toolworks (ITW) generated $278,000 in revenue per employee over the last 12 months. With a market cap of $480 million, JBT is trading for 0.5 times trailing sales. ITW has a market cap of $27 billion and trades for 1.5 times sales.
"[CEO Charles] Cannon said his company is focused on a ‘4G Strategy.’ First is to improve (or grow) JBT’s technology advantage. R&D is a priority, plus management is always looking for acquisitions. ... Second is to ‘grow beyond the sale.’ In addition to parts and equipment repair, JBT’s customer service covers the gamut: preventative and scheduled maintenance, process troubleshooting and consulting, technology modernization and updates. Many customers have JBT employees on-site full time, servicing equipment on a daily basis. Service also includes specialized process management technology, such as software for monitoring and documenting in-container sterilization.
“Third is to ‘grow where the world is growing fastest.’ Currently, JBT is accelerating investments to expand in Asia. In 2010, JBT AeroTech completed a 4,000 square-meter manufacturing facility in Shenzhen, China. The new Shenzhen facility enables local sourcing and manufacturing to supply growing demand for airport gate and ground equipment. The plant is strategically located to support rapid growth in Asia’s regional air transportation industry. Fourth is to ‘grow by delivering value.’ JBT will not introduce a new product or make an acquisition unless it improves profit margins.
"[In addition] Mr. Cannon is improving cash flow, reducing debt, looking at his profit margins, and addressing his competition. He is tough and smart, and his customers appreciate him. JBT has not lost one customer in the past five years, which shows how ‘sticky’ they are. Management said savings from strategic actions and typically stronger seasonal results in the second half of the year are expected to drive margin expansion in 2012. Management’s earnings guidance for 2012 is $1.35 - $1.45 per share, up from net earnings of $1.05 per share in 2011. With the stock at $16, it is trading for 11 times the mid-point of that guidance. ... JBT has a $30 million buyback program in place that ends in 2014. Management did not buy back any stock in the 2Q, but this program will resume in the 2H of 2012 and Mr. Cannon expects to spend every dime of this program over the next ten quarters. JBT finished the quarter with a record low net debt level of $105 million.”
- Tom Byrne, The Periscope Report, August 27, 2012