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Today I sold LDSH at 44.91 for a 16% gain. I am HUGE!
For those of you who never received this pick, this was a special Bonus $$$MR. MARKET$$$ pick emailed out only to those who were generous enough to read through the information on the golf outing I was holding to benefit the PHS Football Little Tigers.
If any of you benefitted from this stock pick, please take the time to visit http://www.golittletigers.com and think about helping out the Little Tigers.
Thanks again for being a supporter of our team.
$$$MR. MARKET$$$
================================================== ========
On Friday, May 5, I bought Ladish Co (LDSH) at 38.57. I will sell it in 4 to 6 weeks at 44.74. Please note I will not be sending out a “sell notice” email on LDSH since this is a “bonus” $$$MR. MARKET$$$ pick and was not sent to the entire membership.
Here’s why I like LDSH:
Ladish is up about 300% from its 52 week low. It’s PE of 29 does not reflect the enormous growth opportunities ahead of it. LDSH sells at a 44% premium to its book value but is cheap compared to its industry and growth prospects. We’ll find out why:
Ladsih makes hundreds of different parts for just about everything that flies (with the exception of birds and bugs).
Ladish Co., Inc. engineers, produces and markets high-strength, high-technology forged and cast metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets. Approximately 89% of the Company’s 2005 billings were derived from the sale of jet engine parts, missile components, landing gear, helicopter rotors and other aerospace products. Approximately 27% of the Company’s 2005 billings were derived from sales, directly or through prime contractors, under United States government contracts, primarily covering defense equipment. The Company is the second largest supplier of forged and cast metal components to the domestic aerospace industry, with an estimated 20% market share in the jet engine component field.
The Company markets its products primarily to manufacturers of jet engines, commercial business and defense aircraft, helicopters, satellites, heavy-duty off-road vehicles and industrial and marine turbines. The principal markets served by the Company are jet engine, commercial aerospace (defined by Ladish as satellite, rocket and aircraft components other than jet engines) and general industrial products.
Ladish offers one of the most complete ranges of forging, investment casting and precision machining services in the world. Consequently, Ladish is often called upon to forge the largest, most complex aerospace and industrial components for a number of the world’s toughest applications. The operation is a pioneer in the application of advanced technology to the forging process and today achieves products with precise and sophisticated mechanical properties.
The Company employs all major forging processes. Much of the Company’s business is capital intensive, requiring large and sophisticated forging, casting and heating equipment and extensive facilities for inspection and testing of components after formation. Ladish believes that it has the largest forging hammer and largest ring-roll in the world at its plant in Cudahy, Wisconsin. Much of the domestic forging equipment has been designed and built by Ladish.
The Company’s top three customers, Rolls-Royce, United Technologies and General Electric, accounted for approximately 56%, 52% and 52% of the Company’s revenues in 2003, 2004 and 2005, respectively. Half of its sales are in the US and the other half is International.
Herman W. Ladish founded the company in 1905 with the acquisition of a 1,500-pound steam hammer and they have been supplying aerospace needs ever since then. Ladish has established links with virtually all of our suppliers and customers for the electronic interchange of data of all types, for example: engineering, accounting, administrative, customer service and marketing information. These established links enable the rapid transfer of critical information to support day-to-day activities, as well as aid continuous improvement activities across all of our operating units, particularly efforts in such areas as cycle time and inventory reduction, and insuring the accuracy, completeness and timeliness of data transactions of all kinds.
The company is divided up into these business units:
Pacific Cast Technologies (PCT) supplies commercial, military and aerospace OEMs with airframe, launch vehicle, and turbine engine structural components. Specializing in investment cast titanium parts exclusively, PCT has developed a fast, reliable process for manufacturing the industry's most advanced, complex, large-scale, near-net-shape castings.
Cudahy Forging supplies highly engineered, high-strength forgings to aerospace and general industrial customers. The operation is the second largest forging facility in North America, employing 700 workers. Cudahy Forging ranks high in customer satisfaction with short production cycle times, highest-quality forgings, comprehensive engineering support, quality certifications.
Ladish Diecast Tooling was founded in 1973. The operation manufacturers shot-end tooling exclusively for aluminum and zinc diecasters. Diecast Tooling is a fully integrated supplier with in-house heat-treat and casehardening facilities. Diecast Tooling serves many of the largest diecasters in the United States, meeting the needs of a customer base that extends from coast to coast.
Stowe Machine Co., Inc. supplies precision machining services, primarily to the aerospace industry. The company specializes in performing the finish machining operations on large and small complex components.
A nice story to be sure but how does it translate into making this company profitable and, ultimately, making its stock price go up? Fundamental changes in the industry which it serves bode very well for Ladish.
LDSH, on April 25, reported 2006 first quarter sales of $95.0 million in comparison to $65.1 million of sales in the first quarter of 2005. The Company reported net income of $7.632 million, resulting in diluted earnings per share of $0.54 for the first quarter of 2006, versus a net income of $2.658 million or $0.19 per share, in the same period of 2005.
What pushed these results was the gross margin of 18.3%, nearly double the estimates. At year end 2005, LDSH had a record backlog of $450 million (highest in their hundred year history). This backlog was surpassed in the most recent quarter, growing to $503 million (over one year of revenues!). This means that new orders are growing at over 18%. Their second quarter should be equally strong.
How can I be so sure? Just look up (and over).
The South Indian states of Andhra Pradesh, Kerala, Tamil Nadu and Karnataka are expected to experience a 25-30% growth in domestic air passenger traffic in ’06, while the growth in international traffic from the four states is likely to be about 20% per annum, as per a recent study by the Centre for Asia Pacific Aviation.
This will be much higher than the national growth forecast, pegged at 25% per annum in case of local travel, and around 15% for global traffic out of India.
Frontier Airlines reported a 27 percent surge in passenger traffic in April 2006, as occupancy increased along with capacity. Miles flown by paying passengers hit 707.7 million, up from 557.3 million a year ago.
The number of seats Frontier offered for sale grew 20.1 percent to 877.4 million from 730.4 million a year earlier. The Denver-based carrier also said its planes were nearly 80 percent full, compared with 76 percent during the same month last .
When was the last time you were on a plane? When was the last time that plane wasn’t crowded. The industry is underplaned. We need more planes. The growth in the industry that was coming pre-September 11 was pushed back to 5 years later..pushed back and compressed. The reduction in demand 5 years ago was an artificial reduction. The true demand is getting back to normal, and the airlines are way behind. Globally demand is growing 8% per year. That’s a lot of new fannies that need seats.
Combine this with the fact that energy costs are spiraling to new highs means that airlines can justify replacing older equipment with newer energy efficient equipment. All of this adds up to more and more demand, and revenue growth, for LDSH. Confirming this is the fact that 2005 was a record year for all commercial aircraft orders.
Also, with the increase in metals and materials costs, LDSH is able to pass these on to their customers (along with their 18% margin). Higher prices mean bigger gross margins. Even though these higher revenues come from inflation, these increased sales allow LDSH to absorb their fixed costs which contributes to greater earnings.
A substantial portion of the Company’s revenues is derived from long-term, fixed price contracts with major engine and aircraft manufacturers. These contracts are typically “requirements” contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered.
LDSH’s backlog declined by approximately 20% following the terrorist attacks on September 11, 2001. Following these terrorist attacks, the commercial aerospace market experienced a significant downturn worldwide. The global commercial aerospace market continued to soften in 2002 and the first half of 2003. The Company’s backlog experienced an upward trend in the second half of 2003. New order activity was strong throughout 2004 with the Company receiving $266 million of new orders in 2004 in comparison to $206 million of new orders in 2003. In 2005, the Company received approximately $434 million in new orders as the commercial aerospace market continued to expand. Ladish’s backlog is an indicator of growth potential ahead.
What about competition moving in? Tthe significant investment in tooling, the time required and the cost of obtaining the status of a “certified supplier” are barriers to entry. Competition is based on quality (including advanced engineering and manufacturing capability), price and the ability to meet delivery requirements. If you were Boeing, would you trust your plane to the new guy on the block?
An important benefit to Ladish of these new aircraft orders is the performance capabilities of their advanced jet engines which caters to Ladish’s product offering.
Ladish is responding to these demand signals. They bought the ZKM forging company in Poland last year and Ladish will use their insight and contacts to expand the mature ZKM business.
Ladish also bought Valley Machining which will help Ladish accommodate the growing demand for machine services.
A recent decision to invest in a new isothermal press is an appropriate response to market demand and will keep Ladish in the forefront of aerospace forging.
So how does this translate into earnings going forward? ANAL-ysts say that Ladish will earn $1.83 in 2006 and $2.28 in 2007. $$$MR. MARKET$$$ thinks that this is kind of ridiculous, considering that LDSH already earned $0.54 in the first quarter and that they will likely earn $0.60 in this quarter. LDSH will earn $2.14/share in 2006 on revenues of $350 million. In 2007, they will earn $2.63/share. If you take their PE of 29 and multiply it by $2.14/share, you get a share price of $62.06 which is well past my sell price.
LDSH’s balance sheet is in very good shape, with a LT Debt to Equity ratio of only about 22%, which is well below industry averages. The age of the company has gone a long way to enabling them be able to pay off their property and equipment over the years.
Here’s what the boss had to say, this year and last year:
"The 46% sales increase in the first three months of 2006 compared to the first quarter of 2005 is due to the continued improvement of the jet engine and aerospace industries, a full quarter of ZKM sales and the overall strengthening of the economy," says Kerry L. Woody, Ladish's President and CEO. "Due to increased sales volumes, higher prices for by-products and better cost absorption from incremental sales growth along with cost reductions, the Company's operations improved in the first quarter of 2006 as gross margins were 18.3% in contrast to 11.2% in the first quarter of 2005. All of our operating units contributed to the improvement in first quarter 2006 results and were ahead of expectations."
Looking forward to the remainder of 2006, Woody remarked, "Under the current conditions we see the sales opportunity continuing to improve this year and we expect a more balanced product mix going forward, although we expect a decline in missile and rocket component sales from the 2005 level. We had a backlog of $502 million at the end of the first quarter of 2006 in contrast to $332 million at the end of the same period in 2005. The recovery of our industry is clearly under way and we expect it to continue. As our markets expand, our priority will be on responding to our customers' requirements while simultaneously working to improve our internal operating efficiencies, assuring availability of critical raw materials and managing the growth of our working capital."
"2005 was a milestone year for Ladish. It was gratifying that we could celebrate the company’s 100th anniversary in a year that featured sustained profitability, record-breaking order activity and sales backlog, and a strategic foreign acquisition,” says Kerry L. Woody, Ladish’s President and CEO. “Ladish’s $266.8 million of sales in 2005 represented a 28% increase over 2004. Correspondingly, 2005 net income of $13.7 million reflected a 265% improvement over the prior year,” noted Mr. Woody. “The sales growth we experienced in 2005 is attributed to the expanding international aerospace market along with a robust demand from our industrial customers.”
“We are optimistic about the opportunities available to Ladish in 2006. With a contract backlog of over $450 million, Ladish has the ability to continue to improve its performance through the incremental sales growth. During fiscal 2006 Ladish will begin the process of moving ZKM toward the aerospace arena. We also expect to capitalize on the skills and capacity growth provided by the acquisition of Valley Machining,” observed Mr. Woody. “With the known and projected growth in the aerospace markets served by Ladish and our participation in key programs such as the Rolls-Royce Trent family of engines and GE’s engine programs, we are excited about Ladish’s prospects for both the near and long term.”
Thanks again for reading about our local benefit for the Princeton High School Football Booster club. I plan on donating a percentage of my profits in my LDSH trade to the Booster Club. If you like this pick, and decide to play it yourself, could you consider doing the same and putting a small percentage of your profits back to this worthwhile cause? Remember, I only sent this pick out to you who responded to me. I offer this whole website as a free service to interested readers.
Thanks
$$$MR. MARKET$$$
For those of you who never received this pick, this was a special Bonus $$$MR. MARKET$$$ pick emailed out only to those who were generous enough to read through the information on the golf outing I was holding to benefit the PHS Football Little Tigers.
If any of you benefitted from this stock pick, please take the time to visit http://www.golittletigers.com and think about helping out the Little Tigers.
Thanks again for being a supporter of our team.
$$$MR. MARKET$$$
================================================== ========
On Friday, May 5, I bought Ladish Co (LDSH) at 38.57. I will sell it in 4 to 6 weeks at 44.74. Please note I will not be sending out a “sell notice” email on LDSH since this is a “bonus” $$$MR. MARKET$$$ pick and was not sent to the entire membership.
Here’s why I like LDSH:
Ladish is up about 300% from its 52 week low. It’s PE of 29 does not reflect the enormous growth opportunities ahead of it. LDSH sells at a 44% premium to its book value but is cheap compared to its industry and growth prospects. We’ll find out why:
Ladsih makes hundreds of different parts for just about everything that flies (with the exception of birds and bugs).
Ladish Co., Inc. engineers, produces and markets high-strength, high-technology forged and cast metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets. Approximately 89% of the Company’s 2005 billings were derived from the sale of jet engine parts, missile components, landing gear, helicopter rotors and other aerospace products. Approximately 27% of the Company’s 2005 billings were derived from sales, directly or through prime contractors, under United States government contracts, primarily covering defense equipment. The Company is the second largest supplier of forged and cast metal components to the domestic aerospace industry, with an estimated 20% market share in the jet engine component field.
The Company markets its products primarily to manufacturers of jet engines, commercial business and defense aircraft, helicopters, satellites, heavy-duty off-road vehicles and industrial and marine turbines. The principal markets served by the Company are jet engine, commercial aerospace (defined by Ladish as satellite, rocket and aircraft components other than jet engines) and general industrial products.
Ladish offers one of the most complete ranges of forging, investment casting and precision machining services in the world. Consequently, Ladish is often called upon to forge the largest, most complex aerospace and industrial components for a number of the world’s toughest applications. The operation is a pioneer in the application of advanced technology to the forging process and today achieves products with precise and sophisticated mechanical properties.
The Company employs all major forging processes. Much of the Company’s business is capital intensive, requiring large and sophisticated forging, casting and heating equipment and extensive facilities for inspection and testing of components after formation. Ladish believes that it has the largest forging hammer and largest ring-roll in the world at its plant in Cudahy, Wisconsin. Much of the domestic forging equipment has been designed and built by Ladish.
The Company’s top three customers, Rolls-Royce, United Technologies and General Electric, accounted for approximately 56%, 52% and 52% of the Company’s revenues in 2003, 2004 and 2005, respectively. Half of its sales are in the US and the other half is International.
Herman W. Ladish founded the company in 1905 with the acquisition of a 1,500-pound steam hammer and they have been supplying aerospace needs ever since then. Ladish has established links with virtually all of our suppliers and customers for the electronic interchange of data of all types, for example: engineering, accounting, administrative, customer service and marketing information. These established links enable the rapid transfer of critical information to support day-to-day activities, as well as aid continuous improvement activities across all of our operating units, particularly efforts in such areas as cycle time and inventory reduction, and insuring the accuracy, completeness and timeliness of data transactions of all kinds.
The company is divided up into these business units:
Pacific Cast Technologies (PCT) supplies commercial, military and aerospace OEMs with airframe, launch vehicle, and turbine engine structural components. Specializing in investment cast titanium parts exclusively, PCT has developed a fast, reliable process for manufacturing the industry's most advanced, complex, large-scale, near-net-shape castings.
Cudahy Forging supplies highly engineered, high-strength forgings to aerospace and general industrial customers. The operation is the second largest forging facility in North America, employing 700 workers. Cudahy Forging ranks high in customer satisfaction with short production cycle times, highest-quality forgings, comprehensive engineering support, quality certifications.
Ladish Diecast Tooling was founded in 1973. The operation manufacturers shot-end tooling exclusively for aluminum and zinc diecasters. Diecast Tooling is a fully integrated supplier with in-house heat-treat and casehardening facilities. Diecast Tooling serves many of the largest diecasters in the United States, meeting the needs of a customer base that extends from coast to coast.
Stowe Machine Co., Inc. supplies precision machining services, primarily to the aerospace industry. The company specializes in performing the finish machining operations on large and small complex components.
A nice story to be sure but how does it translate into making this company profitable and, ultimately, making its stock price go up? Fundamental changes in the industry which it serves bode very well for Ladish.
LDSH, on April 25, reported 2006 first quarter sales of $95.0 million in comparison to $65.1 million of sales in the first quarter of 2005. The Company reported net income of $7.632 million, resulting in diluted earnings per share of $0.54 for the first quarter of 2006, versus a net income of $2.658 million or $0.19 per share, in the same period of 2005.
What pushed these results was the gross margin of 18.3%, nearly double the estimates. At year end 2005, LDSH had a record backlog of $450 million (highest in their hundred year history). This backlog was surpassed in the most recent quarter, growing to $503 million (over one year of revenues!). This means that new orders are growing at over 18%. Their second quarter should be equally strong.
How can I be so sure? Just look up (and over).
The South Indian states of Andhra Pradesh, Kerala, Tamil Nadu and Karnataka are expected to experience a 25-30% growth in domestic air passenger traffic in ’06, while the growth in international traffic from the four states is likely to be about 20% per annum, as per a recent study by the Centre for Asia Pacific Aviation.
This will be much higher than the national growth forecast, pegged at 25% per annum in case of local travel, and around 15% for global traffic out of India.
Frontier Airlines reported a 27 percent surge in passenger traffic in April 2006, as occupancy increased along with capacity. Miles flown by paying passengers hit 707.7 million, up from 557.3 million a year ago.
The number of seats Frontier offered for sale grew 20.1 percent to 877.4 million from 730.4 million a year earlier. The Denver-based carrier also said its planes were nearly 80 percent full, compared with 76 percent during the same month last .
When was the last time you were on a plane? When was the last time that plane wasn’t crowded. The industry is underplaned. We need more planes. The growth in the industry that was coming pre-September 11 was pushed back to 5 years later..pushed back and compressed. The reduction in demand 5 years ago was an artificial reduction. The true demand is getting back to normal, and the airlines are way behind. Globally demand is growing 8% per year. That’s a lot of new fannies that need seats.
Combine this with the fact that energy costs are spiraling to new highs means that airlines can justify replacing older equipment with newer energy efficient equipment. All of this adds up to more and more demand, and revenue growth, for LDSH. Confirming this is the fact that 2005 was a record year for all commercial aircraft orders.
Also, with the increase in metals and materials costs, LDSH is able to pass these on to their customers (along with their 18% margin). Higher prices mean bigger gross margins. Even though these higher revenues come from inflation, these increased sales allow LDSH to absorb their fixed costs which contributes to greater earnings.
A substantial portion of the Company’s revenues is derived from long-term, fixed price contracts with major engine and aircraft manufacturers. These contracts are typically “requirements” contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered.
LDSH’s backlog declined by approximately 20% following the terrorist attacks on September 11, 2001. Following these terrorist attacks, the commercial aerospace market experienced a significant downturn worldwide. The global commercial aerospace market continued to soften in 2002 and the first half of 2003. The Company’s backlog experienced an upward trend in the second half of 2003. New order activity was strong throughout 2004 with the Company receiving $266 million of new orders in 2004 in comparison to $206 million of new orders in 2003. In 2005, the Company received approximately $434 million in new orders as the commercial aerospace market continued to expand. Ladish’s backlog is an indicator of growth potential ahead.
What about competition moving in? Tthe significant investment in tooling, the time required and the cost of obtaining the status of a “certified supplier” are barriers to entry. Competition is based on quality (including advanced engineering and manufacturing capability), price and the ability to meet delivery requirements. If you were Boeing, would you trust your plane to the new guy on the block?
An important benefit to Ladish of these new aircraft orders is the performance capabilities of their advanced jet engines which caters to Ladish’s product offering.
Ladish is responding to these demand signals. They bought the ZKM forging company in Poland last year and Ladish will use their insight and contacts to expand the mature ZKM business.
Ladish also bought Valley Machining which will help Ladish accommodate the growing demand for machine services.
A recent decision to invest in a new isothermal press is an appropriate response to market demand and will keep Ladish in the forefront of aerospace forging.
So how does this translate into earnings going forward? ANAL-ysts say that Ladish will earn $1.83 in 2006 and $2.28 in 2007. $$$MR. MARKET$$$ thinks that this is kind of ridiculous, considering that LDSH already earned $0.54 in the first quarter and that they will likely earn $0.60 in this quarter. LDSH will earn $2.14/share in 2006 on revenues of $350 million. In 2007, they will earn $2.63/share. If you take their PE of 29 and multiply it by $2.14/share, you get a share price of $62.06 which is well past my sell price.
LDSH’s balance sheet is in very good shape, with a LT Debt to Equity ratio of only about 22%, which is well below industry averages. The age of the company has gone a long way to enabling them be able to pay off their property and equipment over the years.
Here’s what the boss had to say, this year and last year:
"The 46% sales increase in the first three months of 2006 compared to the first quarter of 2005 is due to the continued improvement of the jet engine and aerospace industries, a full quarter of ZKM sales and the overall strengthening of the economy," says Kerry L. Woody, Ladish's President and CEO. "Due to increased sales volumes, higher prices for by-products and better cost absorption from incremental sales growth along with cost reductions, the Company's operations improved in the first quarter of 2006 as gross margins were 18.3% in contrast to 11.2% in the first quarter of 2005. All of our operating units contributed to the improvement in first quarter 2006 results and were ahead of expectations."
Looking forward to the remainder of 2006, Woody remarked, "Under the current conditions we see the sales opportunity continuing to improve this year and we expect a more balanced product mix going forward, although we expect a decline in missile and rocket component sales from the 2005 level. We had a backlog of $502 million at the end of the first quarter of 2006 in contrast to $332 million at the end of the same period in 2005. The recovery of our industry is clearly under way and we expect it to continue. As our markets expand, our priority will be on responding to our customers' requirements while simultaneously working to improve our internal operating efficiencies, assuring availability of critical raw materials and managing the growth of our working capital."
"2005 was a milestone year for Ladish. It was gratifying that we could celebrate the company’s 100th anniversary in a year that featured sustained profitability, record-breaking order activity and sales backlog, and a strategic foreign acquisition,” says Kerry L. Woody, Ladish’s President and CEO. “Ladish’s $266.8 million of sales in 2005 represented a 28% increase over 2004. Correspondingly, 2005 net income of $13.7 million reflected a 265% improvement over the prior year,” noted Mr. Woody. “The sales growth we experienced in 2005 is attributed to the expanding international aerospace market along with a robust demand from our industrial customers.”
“We are optimistic about the opportunities available to Ladish in 2006. With a contract backlog of over $450 million, Ladish has the ability to continue to improve its performance through the incremental sales growth. During fiscal 2006 Ladish will begin the process of moving ZKM toward the aerospace arena. We also expect to capitalize on the skills and capacity growth provided by the acquisition of Valley Machining,” observed Mr. Woody. “With the known and projected growth in the aerospace markets served by Ladish and our participation in key programs such as the Rolls-Royce Trent family of engines and GE’s engine programs, we are excited about Ladish’s prospects for both the near and long term.”
Thanks again for reading about our local benefit for the Princeton High School Football Booster club. I plan on donating a percentage of my profits in my LDSH trade to the Booster Club. If you like this pick, and decide to play it yourself, could you consider doing the same and putting a small percentage of your profits back to this worthwhile cause? Remember, I only sent this pick out to you who responded to me. I offer this whole website as a free service to interested readers.
Thanks
$$$MR. MARKET$$$
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