Top Five Mid-Cap Stocks
Each business day, TheStreet.com Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists in the Ratings section of our Web site.
This list is based on data from the close of the previous trading session. Today we focus on mid-caps. These are stocks of companies that have market capitalizations of between $500 million and $10 billion that rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors.
The stocks must also be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. They are ordered by their potential to appreciate.
Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans.
Valmont Industries
(VMI) - Get Report
is a global manufacturer that designs and manufactures poles, towers, and structures for the lighting, traffic, utility and communications industries. The company also makes mechanized irrigation systems and water management equipment for agricultural use, provides protective coating services for infrastructure and produces fabricated products for commercial and industrial applications. Headquartered in Omaha, Neb., Valmont currently operates in 43 facilities located in 14 countries.
We have rated Valmont a buy since April 2005, based on the company's robust revenue growth, largely solid financial position and compelling improvement in net income. For the first quarter of fiscal 2008, the company's revenue rose 24% year over year. This growth appears to have helped boost earnings per share, which improved to 11 cents from 10 cents in the first quarter of fiscal 2007. Net income increased 59% year over year to $29.7 million. Overall, the company reported record first-quarter sales, operating income and net earnings, driven by strong global demand for Valmont's infrastructure and agriculture products. Finally, the company's current debt-to-equity ratio of 0.53 is relatively low, implying successful management of debt levels.
The company expects that the positive environment seen in the first quarter will continue through this year, with the company hoping to benefit from a strong global agricultural economy and increased global spending on infrastructure. Management now anticipates year-over-year sales growth to be in the high teens, while operating income as a percent of sales is expected to show a slightly greater-than-one-point improvement for the year. However, Valmont's future results and our buy rating are subject to a variety of risks, including the availability and price of raw materials, future economic and market circumstances, and any actions or policy changes from domestic and foreign governments.
Strayer Education
(STRA) - Get Report
is a for-profit postsecondary education services corporation. The company's mission is to make high-quality postsecondary education achievable and convenient for working adults in today's economy. Strayer offers a variety of academic programs through its wholly owned Strayer University. Programs are offered in both a traditional classroom setting and through Strayer University Online. The university was founded in 1892, and today it offers undergraduate and graduate degree programs in business administration, accounting, information technology, education and public administration at 57 physical campuses in Pennsylvania, Delaware, Maryland, Washington, D.C., Virginia, North Carolina, South Carolina, Georgia, Tennessee and Florida.
Our buy rating for Strayer has not changed since March 2003 and is based on a variety of strengths that include revenue and net income growth as well as a solid financial position. For the first quarter of fiscal 2008, Strayer's revenue rose 21% year over year due to increased enrollment and a 5% tuition increase that went into effect in January 2008. As a result, earnings per share improved 26%, while net income increased 25% to $23.52 million from $18.81 million in the year-ago quarter. The company has no debt, resulting in a debt-to-equity ratio of zero.
Strayer is working to expand its geographic footprint and expand student enrollment. It recently opened two new campuses for the summer term in new Florida markets. The company has now opened six of the nine new campuses planned for 2008. Due to its strong enrollment growth of 19% for the spring term, management estimates second-quarter EPS will range from $1.45 to $1.47. However, these projected results could be negatively impacted should the company fail to increase student enrollment or successfully implement its growth strategy.
Woodward Governor
( WGOV) designs, manufactures and services energy control systems and components for aircraft and industrial engines, turbines and other power equipment. Founded in 1870 and currently headquartered in Fort Collins, Colo., the company serves customers worldwide. Customers are typically original equipment manufacturers (OEMs) who use Woodward's products in the power generation, process industries, transportation and aerospace markets.
We have rated Woodward a buy since November 2004 based on strengths such as robust revenue growth, a solid stock performance, and an impressive record of EPS growth. For the second quarter of fiscal 2008, revenue rose 19% year over year. The company improved its EPS to 43 cents in the most recent quarter from 29 cents a year ago. Net income increased 47% to $29.7 million. Additionally, Woodward has a debt-to-equity ratio of 0.13, which implies successful management of debt levels.
The company believes that prior investments to boost geographic expansion and market penetration allowed Woodward to achieve sales growth in the second quarter despite economic uncertainty. The company's outlook for the remainder of the fiscal year is therefore positive, leaving management to anticipate companywide sales growth of 14% to 16% year over year for fiscal 2008. The company also expects earnings in the range of $1.61 to $1.66 a share for the full year. Woodward's stock has already experienced a very nice gain of 48% this year, but we feel that the stock should continue to move higher. Bear in mind, however, that even the most promising stocks can fall during broader market declines.
Bucyrus
( BUCY) designs, manufactures and markets high-productivity equipment for use in surface and underground mining. Products include draglines, electric mining shovels and rotary blasthole drills. The company also provides the aftermarket replacement parts and service for these machines. Over the life of a machine, customer purchases of aftermarket parts and services generally exceed the original purchase price of the machine. Bucyrus has a network of 26 sales and service offices located in all countries with major surface mining operations, as well as manufacturing facilities in Wisconsin.
Bucyrus has been rated a buy since July 2006. Revenue more than doubled for the first quarter of fiscal 2008. Net income also grew, rising 130% year over year to $41.1 million. The company also reported significant EPS improvement to $1.09 a share from 57 cents a share a year ago. High international commodity prices and strong markets for commodities mined by Bucyrus' machines helped drive global demand for the company's products in the second quarter, leading to an overall increase in surface mining sales. Bucyrus also appears to be relatively successful in managing its debt, based on the company's most recent debt-to-equity ratio of 0.62.
Powered by factors such as its strong earnings growth of 91%, Bucyrus' stock price has surged 98% over the past year. We feel that the company's strengths outweigh the fact that it is now trading at a premium valuation to its peers. Bear in mind, however, that the machinery industry as a whole faces challenges from the recent surge in commodity prices.
Harsco
(HSC) - Get Report
is a diversified, multinational provider of industrial services and engineered products. The company works with a variety of industries, including steel, construction, railways and energy. Harsco operates in three business segments: Mill Services, Access Services, and Minerals and Rail Services and Products. The company has locations in 45 countries, including the U.S.
Harsco has been rated a buy since March 2003, based on various company strengths, such as its growth in revenue and net income and its largely solid financial position. Revenue rose 18% year over year for the first quarter of fiscal 2008. Earnings per share appear to have been boosted by this revenue growth, improving 24% in the same period. Net income increased 20% to $57 million. The company's current debt-to-equity ratio of 0.71 implies successful management of debt levels.
Management was pleased with what it considered a strong start to fiscal 2008 and remains confident in its outlook. With almost 70% of the company's revenues generated outside the U.S., the company feels that it has effectively limited its exposure to domestic economic conditions. Management raised its full-year 2008 guidance for EPS from continuing operations to a new range of $3.45 to $3.55 a share from the previous range of $3.40 to $3.50 a share. Although the company reported a disappointing return on equity, we feel that its strengths outweigh this weakness. While the stock's increase in price over the past year has made it relatively expensive compared to the rest of its industry, we feel that the company's strengths justify the higher price levels at this time.
Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.
However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could impact the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.
This article was written by a staff member of TheStreet.com Ratings.