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Published: May 28, 2010
There are few occasions when investors have an opportunity to
own a global brand name at a substantial discount. There are
exceptions, but a company whose name has become synonymous with
its product is usually the kind of stock that makes for a great
core holding, providing stability in difficult times.
But when the market discounts a global brand by -30% from its
high, it presents an opportunity that cannot be dismissed. We're
seeing that with Brink's Company (NYSE: BCO) today.
The Brink's name has become synonymous with security, going as
far back as 1838. Next time you see an armored car outside a
bank, note the name. The odds are very high it'll be a Brink's
truck. The company provides secure transportation, cash
logistics and other security-related services to banks and
financial institutions, as well as retailers, government
agencies, mints, jewelers and other commercial operations.
The market kindly discounted Brinks in the summer of 2008 when
the company announced a spinoff of its home security business.
Investors took the stock down from $70 to $40 in less than two
months.
Today, Brink's has become a leaner operation. The company sold
off its natural resource division, a portion of the business
that never made much sense anyway. And after completing the
spinoff, the newly-formed Brink's Home Security was scooped up a
year later by Tyco International (NYSE: TYC).
The thing holding Brink's back is the same thing holding just
about everyone back: the economy. Earnings were severely
hampered, down -75% in the first quarter on flat revenue. This
kind of performance would normally give any investor plenty of
cause for concern. However, there are several factors which
mitigate these results and are the reasons Brink's is a value
play today.
First, as mentioned, the economy stinks. But it will improve,
and a global brand is likely to improve with it, provided it
survives the downturn. So the next step is to examine company
financials to see if this will be possible. In Brink's case, the
company carries $201 million in debt and $132 million in cash.
This disparity is only cause for concern if Brink's is having
trouble servicing that debt.
Investors can breathe a sigh of relief on
that front by looking at the
income statement. Brink's pays only $11 million in
interest annually on that debt, just about 5.5%, which is a
very reasonable rate. This past quarter, the company's worst in
some time, still showed operating profits of $24 million -- so
there's no worry about debt service. This past quarter wasn't
great for
cash flow, as Brinks only generated $5 million, compared to
$175 million combined in the previous three quarters. Again,
however, this is not a concern unless Brink's cash flow
repeatedly goes negative.
Is this a possibility? Analysts don't think so -- they are
predicting +23% earnings growth to $1.77 a share in 2011. For
those who would put an earnings multiple of 20 to that number
(to reflect the forward earnings growth) Brink's could be
looking at a $36 share price, or a +60% return from here. When
combining the last traded price of Brink's Home Security prior
to the Tyco
buyout and Brinks' stock price today, it comes in -30% below
its all time high. By any measure then, the stock seems
undervalued.
Investors looking to see if Brinks is still held in high regard
by other investors need seek no further than the mutual fund
industry. 35% of the shares are held by these funds, including
such names as Fidelity, Vanguard and Morgan Stanley. That's a
solid show of support.
Action to Take--> Overall,
this is a good opportunity to own a global brand name at a
discounted price. When the economy picks up, investors could see
outsized returns.
-- Frederick Steier
Contributor
StreetAuthority |
