John Bean Tech JBT S
October 24, 2017 - 12:22pm EST by
heffer504
2017 2018
Price: 114.00 EPS 3.04 3.63
Shares Out. (in M): 33 P/E 37 31
Market Cap (in $M): 3,730 P/FCF 45 38
Net Debt (in $M): 370 EBIT 145 179
TEV ($): 4,100 TEV/EBIT 27 23
Borrow Cost: General Collateral

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Description

John Bean is a perfectly good company that is being valued as a great one.  It is comprised of two distinct segments-- Foodtech, which makes processing equipment for food processors (poultry processors, vegetable canning, etc.) and Aerotech, which makes boarding bridges for airports.  Both these businesses have been growing around 5% recently, but are highly cyclical-- it took until 2014 to re-attain 2007 revenue levels, and that included some acquisition activity.

 

While the market clearly liked today’s earnings, they seemed lackluster to me:

 

  • 5% earnings beat, but they have beat by 10-50% since 2013, so I would view this as a negative.  Also beat by .04 but left q4 guidance in-line with street.

 

  • 1% rev beat, also very low by historical standards, and partly consensus was too low since analysts didn’t update for 2 intra quarter acquisitions (9m of newly acquired revs in the quarter; they beat by 4m).

 

  • Receivables up 20m, inventories up 20m sequentially.

 

  • Backlog ok, but book/bill 1.0 in food (flat sequentially), 1.2 in aero (down from 1.3 last quarter).  Given the acquisitions, backlog should have grown.  Backlog/revs for food is actually declining last few quarters, while aerospace is up in last few quarters but flat with a year ago.  Food is a higher multiple so the net of this is negative.

 

If you back out food acquisitions in the last 8 quarters, my calculated growth rate for their core food business is below management’s stated organic growth:



 

It is tough to find comps for their Aerotech group, but I think this is clearly just an OK business—their customers are airlines after all.  I have generously applied 15x LTM EBIT here to get a value of $540m.  This implies the remaining foodtech business is being valued at 27.5x forward EBIT, a healthy premium to comps at 12-17x EBIT.  If this division were valued at 17x, the stock would trade at $70:

 

     

 

In my mind, there was nothing surprising or exciting about today’s earnings release, and the stock should retrace.  Longer-term, investors should question why they are paying record multiples on peak earnings:

 

 

 

 

The author of this idea and/or a private fund managed by the author’s firm had a [short] position in this security at the time of posting and may trade in and out of this position without informing the SumZero community.

This write-up discusses general market activity, industry or sector trends, and other broad-based economic or market conditions and should not be construed as research or investment advice.  Readers are urged to consult with their financial advisors before buying or selling any securities.  The information included herein may not be current and the author has no obligation to provide any updates or changes. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein.

Certain information contained in these materials has been obtained from published and non-published sources prepared by third parties, which, in certain cases, have not been updated through the date hereof.  While such information is believed to be reliable, the author has not independently verified such information and does not assume any responsibility for the accuracy or completeness of such information. Except as otherwise indicated herein, the information, opinions and estimates provided in this presentation are based on information as of the date this write-up has been prepared and not as of any future date, and will not be updated or otherwise revised to reflect information that is subsequently discovered or available after the date hereof.  The author’s opinions and estimates constitute the author’s judgment and should be regarded as preliminary and for illustrative purposes only.

Certain information contained in these materials constitutes forward-looking statements.  Due to various risks and uncertainties, actual events or results of the actual performance of a company may differ materially from those reflected or contemplated in such forward-looking statements.

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

insider selling

sell-side downgrades (avg target price of $109)

cycle turns

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