Description
Moog Inc. is a precision parts manufacturer that specializes in supplying
Military, Commercial and Industrial controls. Moog celebrated its 50th
anniversary in 2001 and has made some moves to increase shareholder value
and liquidity including a 3-for-2 stock split, the issuance of 1.98
million shares to pay down debt and increase float and moving to the NYSE
from the AMEX.
The shares trade at 10.3x forward earnings of $2.40 and 6.3x Enterprise
Value to EBITDA - a multiple more suited for a Commercial parts supplier
rather than a Defense supplier that has increased Free Cash Flow by over
20% annually in the last 2 years to $26.2 million in the year ended Sept.
2001 from $16.6 in FY 1999 and $20.9 in FY 2000.
The Company operates in 3 segments: (from 10K)
Aircraft Controls ($340 Million in Sales, 14.5% Op Margins) - designs and
manufactures technologically advanced flight and engine controls for
manufacturers of military and commercial aircraft. Moog currently
supplies flight controls for all major, in production US military
aircraft. Moog controls are found on every Boeing and Airbus aircraft and
they also supply controls for business jets built by Bombardier, Raytheon,
Gulfstream and Cessna.
Space Controls ($103 Million in Sales, 11.9% Op Margins) - designs and
manufactures controls and systems that control the flight, positioning or
thrust of tactical and strategic missiles, launch vehicles, satellites and
NASA's Space Shuttle.
Industrial Controls ($261 Million in Sales, 8.3% Op Margins) - designs and
manufactures hydraulic controls and electric controls used in a variety of
industrial applications. Moog controls are used by various industries
that depend on precision instrumentation like mining, textiles, and high-
speed combat vehicles.
Enterprise Value: $702
Moog has 15.1 Million shares outstanding at $24.75 = $374
Total debt is $334 (retired $39 Million in December)
Excess Cash of $6 Million
The Company predicts that Fiscal 2002 earnings per share will be between
$2.40 and $2.49. Using $2.40 in earnings one can work back to $112 in
EBITDA.
Net Income $36 Million
Depreciation 32
Interest 29 (Assume Interest Rate of 8.6%)
Taxes 15
EBITDA $112 Million
This is the first company I've run across that publishes their forecast
for the next fiscal year in their 10-K. Moog is able to predict sales and
earnings with some visibility due to 40% of sales being long-term
contracts accounted for under percentage of completion. Moog also has a
large and growing backlog of $364 Million versus $337 in 1999. Backlog is
defined as orders received that will be shipped within the next 12-months.
Moog has made two acquisitions recently both around its core business.
The purchased the net assets of the satellite and space vehicle product
lines of the Electro Systems Division of Tecstar for $8 million in cash.
In June of 2001, the Company purchased the net assets of the space valve
product line of PerkinElmer Fluid Sciences for $6 million in cash.
Risks:
The Company has a fairly aggressive capital structure with debt 1.5 times
equity. (Not including $80 Million in unfunded pension liabilities.)
Moog is subject to currency risk with 42% of sales coming from outside
the US.
For a product that sounds technologically advanced, Moog's Gross margins
are only 30% and have come down 150bps since 1999.
Still, at the end of the day you have a company that supplies a niche
component to every Military airplane, helicopter and most missle's. The
stock's multiple should expand due to a management team more focused on
shareholders with expanding margins and earnigs growth.
Note: Moog Class B shares have greater voting rights but do not have a
claim on a greater percentage of earnings than Class A shares.
Catalyst
Multiple expansion due to increasing margins and earnings as a result of
increased sales to the military.