Monday, November 14, 2011

Finning International Inc 2

The Loonie Bin Blogger had an interesting blog on Saturday. It was really a book review. However it did call attention to how people who invest treat the stock market. See this blog. I certainly think that your view of the stock market determines very much if you make any money investing in stocks. If you view the stock market as a business venture I think you can make money in the long term. If you view investing in stock as a gamble I do not think you will make money.

Now, on to the stock, Finning International (TSX-FTT), which is the stock that I want to discuss today. I do not own this stock. This stock is pretty much in the same business as Toromont. When I was in the market for such a stock, I picked Toromont. I think that they are both good companies, but I would not invest in both. I do not want to over diversity my portfolio.

I get a 10 year median low Price/Earnings Ratio 14.39 and a 10 year high P/E Ratio of 21.52. The current P/E Ratio of 14.92 is on the low side, suggesting a good current stock price. I get a Graham Price of $16.08 and this is some 28% lower than the stock price of $22.38. However, the low difference between the Graham price and stock price has the Graham price 17% lower and the median difference has the Graham price 41% lower than the stock price. So by this measure, the stock price is on the low side.

However, when I look at the Price/Book Value, I get a 10 year median P/B Ratio of 2.37 which is 23% lower than the current P/B Ratio of 2.92. This suggests that the current stock price is not low. Also, the current dividend yield of 2.32% is lower than the 5 year median yield of 2.8%. This suggests that the current price is also not low. The thing with these tests is that that the last two tests use no estimates which the first two tests do.

Looking further, I see that the dividend yields have been unusually high over the past 5 years. The 10 year median high dividend yield is lower at just 1.56%, so this put the current yield in a more favorable light. The problem with the P/B Ratio test is that book value has been going down, due mainly to lack of recent earnings. There has recently been some higher than usual Dividend Payout Ratios. DPRs are expected to go lower over this year and next.

Next, we should go to insider trading. There is some 1.7M of insider selling and minimal insider buying. Considering this is a $3B company, there is not much insider trading. There has been no action on insider trading since July of 2011. CEO and CFO and officers have more stock options than shares. Some 141 institutions own 30% of the shares in this company. Over the past 3 months they have marginally reduced their shares. There was a fair bit of buying and selling of these shares by institutions over the past 3 months.

When I look at analysts’ recommendations I find there is about a dozen analysts following this stock. There are a number of both Strong Buy and Buy recommendations, and a few Hold recommendations. The consensus recommendation would be a Buy. A buy recommendation comes with a 12 months stock price of $30.25.

One analyst thought the stock was oversold. Another analyst thought the market for heavy equipment would continue to be very strong globally and in Canada. Another analyst liked the fact that besides selling equipment, Finning also does rentals, repairs and customer support. He also liked the fact that the company is in South America.

This is a company you would buy for diversification, for the increasing dividend payments and long term capital gain. For more information on setting up a portfolio, see my site. This stock is on the dividend lists that I follow of Dividend Achievers (see resources) and Dividend Aristocrats (see indices).

The Globe and Mail talks about this stock in an article called The cream of the crop for dividend growth. This is a number cruncher article. Another Globe and Mail article comments on Finning’s third quarter third quarter results.

This company sells, rents and provides customer support services for Caterpillar equipment and engines. They cover Canada, UK, Argentina, Bolivia, Chile and Uruguay. Its web site is here Finning. See my spreadsheet at ftt.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

No comments:

Post a Comment