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Validea's pick of the week provides a detailed report on a company that scores well in the stock-screening service's model portfolios. On Validea.ca, investors can analyze 1,000 Canadian stocks through 12 different guru-based models and get individual reports on each company. Globe Investor provides marketing and data services to Validea.ca and receives compensation. Try it.
Federal Signal Corp. designs and manufactures a suite of products and integrated solutions for municipal governmental, industrial, and commercial customers, with products ranging from street sweeper and vacuum trucks to waterblasting equipment to vehicle-mounted aerial platforms for fire fighting, rescue, electric utility, and industrial uses. Its market cap is $800-million (U.S.)
The company has grown EPS at a 46-per-cent clip over the long term (using an average of the 3- and 4-year EPS growth rates), impressing the Peter Lynch-based model. It has P/E of 12.3 and PE-to-growth ratio of 0.27 and has debt/equity ratio of less than 11 per cent, which also impresses the Lynch model.
The Joel Greenblatt model likes its 13.5-per-cent earnings yield (EBIT/enterprise value) and its 32.6-per-cent return on capital (EBIT/tangible capital employed).
Federal Signal has an 8.8-per-cent free cash flow yield, 17-per-cent return on equity vs. the 9-per-cent auto and truck manufacturers industry average, 9 per cent profit margins vs. the 3-per-cent industry average and a 2.2-per-cent dividend yield.
The Benjamin Graham-based model likes its 2.7 current ratio, and $198-million in net current assets vs. $44-million in long-term debt.
Shares fell sharply in late February when it agreed to acquire Joe Johnson Equipment, a Canadian distributor of maintenance equipment for the municipal and industrial markets, for approximately $79-million. Costs and other factors related to the transaction mean the acquisition may not be accretive until the end of 2018, but our models think investors have responded too negatively to the deal.
John Reese is long FSS.
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