Neutral on Wonder Auto Tech
Wonder Auto Technology (WATG), is a beneficiary of a high market share in alternator and starter production in China, along with strategic positioning in the faster growing sub-segments in these markets. Wonder Auto Technology announced that its subsidiary, Jinzhou Electrical Equipment Co. Ltd., has entered into a four year supply agreement and received supply orders for its starters and alternate products from a major North American OEM automotive manufacturer.
Shipments are expected begin in June 2009 and continue through June 2013. The contract is valued in excess of $13.5 million. On February 5, 2008, Wonder Auto Technology reported fourth quarter and full year 2007 results.
In the fourth quarter, earnings per share were $0.17. Net income was $4.3 million, reflecting an increase of 81.6% to $2.4 million. Net margin was 14.5%. Total revenues increased 55.4% to $29.7 million.
Currently, Wonder Auto is valued at 10.1x our 2008 earnings of $0.81. However, weak product pricing, high customer concentration, and an unusually low tax rate force us to rate the stock a Hold with a target of $8.50. This is 10.5x our 2008 earnings estimate.
BUD Remains a Buy Up to $61.25
Anheuser-Busch Companies (BUD) is benefiting from industry consolidation of production and a growing international beer presence from management's astute acquisition strategy. Though there are concerns about higher commodity costs, especially energy, agricultural, and packaging costs, the results year-to-date demonstrate management's ability to implement productivity programs to offset the negative inflationary effects.
Valuation, demographic trends, and the significant multi-year $100 million share repurchase program make the stock an attractive investment at current levels. The Buy recommendation is maintained.
The outlook for the beer industry is positive. The beer segment was hurt by a shift in consumer preferences toward healthier, non-alcoholic beverages in the 1990s, but now with the key 21- to 28-year-old age group growing again, U.S. beer consumption is expected to rise. A majority of domestic brewers have experienced a decline in shipments due to high wholesaler inventories; however, sustainable price increases have led to growing revenue per barrel.
Anheuser-Busch stock has traded in a P/E range of 16 to 27 over the last five years. At the current P/E of 17.3, we find the stock attractive and expect the stock to outperform. Our target of $61.25 is based on a 22 P/E on trailing 12-month earnings.
Bidding Improves for AAON Biz
The outlook for AAON, Inc. (AAON) may appear a bit clouded to some observers, as orders reportedly are up, but backlog is declining. However, one bright spot for AAON is that the Canadian dollar has backed-off after a significant run-up, which helps with product that is bid in U.S. dollars but is built in Canada. Because of this phenomenon, AAON could experience a slowing in sales growth while still reporting increasing earnings per share.
Another positive is that bidding activity has improved, which certainly bodes well for AAON for the second half of this year. Management has indicated that the results for Q1-08 will be a record, but is understandably reticent about looking further out at this point. Our latest recommendation is BUY, based on a six-month target price which is 32.4% higher than AAON's current price.
The average P/E for this group (excluding AAON) is 14.4, while AAON's is but 13.0. It does not appear to this writer that the market is appropriately crediting AAON for having the highest operating margin of the group; nor does it seem reasonable to accord AAON a PEG ratio that is less than 1/2 the group's mean PEG ratio. Our target price on AAON shares is just over $26.
