Monday, May 9, 2016

MacDonald, Dettwiler & Associates

Sound bite for Twitter and StockTwits is: Maybe cheap to reasonable. I see problems like the debt ratios are not very good and would give them vulnerability in bad times. Also, insider selling does not look great. Net Insider Selling for 2015 and 2014 was at 0.22% and 0.23% of market cap. For the stocks I cover the NIS median is 0.02% and 75% of the stocks I cover have NIS at 0.11% or lower. See my spreadsheet on MacDonald, Dettwiler & Associates.

I do not own this stock of MacDonald, Dettwiler & Associates (TSX-MDA, OTC-MDDWF). I read about this stock in MPL Communication's Advice Hotline dated October 10, 2012. CanTech likes it also. It is a Tech stock with dividends. I am considering replacing Progressive Waste Solutions (TSX-BIN, NYSE-BIN). So, I am looking at this stock which is Tech as I have little in Tech and WSP Global Inc. which is an industrial as is Progressive Waste.

This stock just started to pay dividends in 2012. There has been only one dividend increase and that was in 2015 when the dividends were increased by 13.8%. Analysts that follow this stock do not seem to think there will be another increase until at least 2018. So we really do not know if this stock will progress into a dividend growth stock or not.

Because of the one dividend increase dividend growth is just 4.4% per year over the past 3 years. This is a rather low rate. Also dividend yields are rather low. The current yield is 1.7% based on dividends of $1.48 and a stock price of $89.10. The median dividend yield so far is 1.78%.

It would seem that the company can afford their dividends. The Dividend Payout Ratio for EPS for 2015 is 38.5% and 16% for CFPS. The DPR for EPS for 2016 is expected to be around 30% and for CFPS is expected to be around 18%. However, I note that in 2014 the DPR for EPS was 99%.

The Liquidity Ratio for 2015 was 0.98 and its 5 year median value is 0.79. If you add in cash flow after dividends it becomes 1.05 and has a 5 year median value of 0.87. The problem with low Liquidity Ratios is that it makes the company vulnerable in bad times. I prefer this ratio to be 1.50. When the Liquidity Ratio is below 1.00, it means that current assets cannot cover current liabilities.

The Debt Ratio is also low, but not below 1.00. The Ratio for 2015 is 1.44 and the 5 year median value is 1.44. For safety's sake I prefer this ratio also to be at least 1.50. The Leverage and Debt/Equity Ratios are not particular good either at 3.26 and 2.26.

The Return on Equity has been lower than 10% once in the past 5 years and 3 times in the past 10 years. However, the 5 year median ROE has been above 10% over the past 10 years.

There has been good growth in Revenue, Earnings and Cash Flow. However, the outstanding shares have been decreasing by 2.5% and 1% per year over the past 5 and 10 years because of buy backs. So when looking at growth you should focus on Revenue, Net Income and Cash Flow and not per share values to really see the growth for this company. For example, the Revenue growth is 25.2% and 9.8% per year and the Revenue per Share growth is 28.3% and 10.9% per year over the past 5 and 10 years. In both cases, the growth is good.

The 5 year median Price/Earnings per Share Ratios are 18.77, 22.50 and 26.10. The corresponding 10 years ratios are 18.21, 22.41 and 26.13. The corresponding historical ratios are 18.25, 22.41 and 26.13. They are fairly consistent. The current P/E Ratio is 18.33 based on a stock price of $89.10 and 2016 EPS estimate of $4.86. This stock price testing suggests that the stock price is relatively reasonable and below the median.

The EPS estimate for 2016 is an increase of over last year of 27%. The first quarterly report is in and EPS have gone up but by only 1%.

I get a Graham Price of $56.84. The 10 years low, median and high median Price/Graham Price Ratios are 1.61, 1.95 and 2.32. The current P/GP Ratio is 1.58. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year median Price/Book Value per Share Ratio of 3.83. The current P/GP Ratio is 3.06 a value some 10% lower. This stock price testing suggests that the stock price is relatively cheap.

The current Dividend Yield is 1.66%. The median Dividend Yield for this stock is 1.78% a value some 6.8% higher. This stock price testing suggests that the stock price is relatively reasonable but slightly above the median. Probably not a good test because there are so few years to test.

The 10 year P/S Ratio is 1.52 and the current P/S Ratio is 1.45 based on Revenue estimate for 2016 of $2233M and a stock price of $89.10. With some 36.25M shares outstanding, the Revenue per Share is $61.60. The current P/S Ratio is some 4.8% lower than the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.

The 10 year median Price/Cash Flow per Share Ratio is 17.31. The current P/CF Ratio is 12.75 a value some 26% lower. This current P/CF Ratio is based on 2016 estimate of CFPS of $6.99 and a stock price of $89.10. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Buy and Hold recommendations. There are more Holds than Buys, so the consensus recommendation is a Hold. The 12 months stock price consensus is $95.22. This implies a total return of 8.53% with 6.87% from capital gains and 1.66% from dividends.

In an interview, the current CEO says why he is leaving the company. He is not a US citizen. Doyle Publishing Ltd. on Seeking Alpha says to avoid this company. First because growth in revenue is not matched with growth in earnings, price is too high and it has lots of long term debt. My quibble with this analysis is that earnings tend to fluctuate and last year was not a good year for earnings. One bad earnings year does not get you to revenue and earnings growth not matching. There is an interesting and again negative view of this company at Vuru. They think stock is overvalued by $39.97 or 55.14%. Joseph Solitro of Motley Fool likes the price of this stock and feels that recent CFPS increases will allow it to raise the dividends in 2016.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

The last stock I wrote about was about was Thomson Reuters Corp. (TSX-TRI, NYSE-TRI)... learn more . The next stock I will write about will be WSP Global Inc. (TSX-WSP, OTC- WSPOF)... learn more on Wednesday, May 11, 2016 around 5 pm.

MacDonald, Dettwiler & Associates Ltd. is a global communications and information company providing operational solutions to commercial and government organizations worldwide. Its web site is here MacDonald, Dettwiler & Associates.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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