Today's research recommendation is Briggs and Stratton (BGG). BGG produces small engines and their parts. According to Mergent's, BGG has increased it's dividend at least 13 consecutive years in a row.
According to the Valueline report dated January 25, 2008, BGG typically trades around 9x cash flow. Based on this measure, BGG should trade at $20.70 using Valueline's estimated cash flow figure of $2.30 for 2008.
There is one matter of particular concern which I hope will be alleviated over time. The company's dividend of $0.88 per share is significantly above the trailing twelve months earnings of $0.12. In situations like this one of several things have to take place, either earnings have to rise, the company may have to borrow or dip into reserves to maintain the dividend or the dividend needs to be cut. All of these outcomes are potentially positive as a remedy except borrowing to keep the dividend.
Speaking of debt, BGG's long-term debt is down from $508 million in 2001 to $268 million in 2007. This has to be a positive if the debt reduction trend can be continued while maintaining the shares outstanding at the same level.
While the verdict is not out on this stock, I noticed that BGG severely underperforms the market during periods of recession. In the recession of 1990 the stock fell 40% from its high of pre-split price of $25. In the recession of 2001, BGG fell 39% from its pre-split price of $48 all the way down to$29. Since recessions aren't usually determined until after the fact and with BGG already down 47% from its one year high of $33.40 back in June of 2007 we could see limited downside risk.
Best of luck on your research with this stock. Touc.
According to the Valueline report dated January 25, 2008, BGG typically trades around 9x cash flow. Based on this measure, BGG should trade at $20.70 using Valueline's estimated cash flow figure of $2.30 for 2008.
There is one matter of particular concern which I hope will be alleviated over time. The company's dividend of $0.88 per share is significantly above the trailing twelve months earnings of $0.12. In situations like this one of several things have to take place, either earnings have to rise, the company may have to borrow or dip into reserves to maintain the dividend or the dividend needs to be cut. All of these outcomes are potentially positive as a remedy except borrowing to keep the dividend.
Speaking of debt, BGG's long-term debt is down from $508 million in 2001 to $268 million in 2007. This has to be a positive if the debt reduction trend can be continued while maintaining the shares outstanding at the same level.
While the verdict is not out on this stock, I noticed that BGG severely underperforms the market during periods of recession. In the recession of 1990 the stock fell 40% from its high of pre-split price of $25. In the recession of 2001, BGG fell 39% from its pre-split price of $48 all the way down to$29. Since recessions aren't usually determined until after the fact and with BGG already down 47% from its one year high of $33.40 back in June of 2007 we could see limited downside risk.
Best of luck on your research with this stock. Touc.
